Monthly Commentary February 2023

After starting the year firmly in the green, most global equity indices gave up gains in February. The S&P was down 2.5%, surprisingly more than the techheavy Nasdaq which fell only 1%. Globally, the MSCI ACWI was down 2.8%, while Hong Kong’s Hang Seng index lost more than 12%. Stocks fared better in Europe, with London’s FTSE and the Euro Stoxx both gaining 1.8%.

The US saw a further 25 basis point rate hike in January, but with inflation cooling less than expected (at 6.4% ahead of consensus of 6.2%), the consensus now seems to be that rates will stay higher for longer. There were more indicators that inflation may well remain sticky, as the Producer Price index, as well as the Personal Consumption Index – both key gauges monitored by the Federal Reserve – also came in higher than expected. Predictably, traders are now pricing in more rate hikes in the US, resulting in the Dollar rallying this month, gaining 2.5% vs the British Pound and almost 5% vs the Japanese Yen.

Earlier in February, Chinese stocks rallied after the best manufacturing activity numbers in more than a decade emerged from the country. However, market fears resurfaced after the disappearance of (yet) another Chinese banking boss, as well as geopolitical tensions ramping up, leading to losses for major Chinese firms.

The war in Ukraine reached the grim milestone of entering its second year. There can be no doubt that the invasion has not panned out as Putin envisioned, and in many respects the outlook is deteriorating. The West appears resolute in their response, upping the ante by providing offensive weaponry such as battle tanks – a step previously ruled out.

The local bourse also gave up some ground in February, with the All Share losing 2.2%. The latest inflation reading of 6.9% came down slightly (previously 7.2%). The Rand, like most other currencies, weakened considerably against the dollar in February – with one greenback now costing 5.4% more.

The biggest news story this month was no doubt outgoing Eskom boss, Andre de Ruyter’s bombshell interview. If the allegations are true, it would implicate some ANC bigwigs at the highest levels in government of corruption at a grand scale, and no-doubt implicate many others for at least having in-depth knowledge of looting at the ailing utility.

The ANC is quite clearly feeling the heat ahead of the national elections next year, declaring a state of disaster as the rolling blackouts that have been a constant throughout 2022/2023, threatens their popularity at the ballot box.

James Hayward BEng (Civil)
Equity Analyst

James, or JD as he prefers to be known, is an equity analyst in the global investment team, having joined Flagship in 2021. At the completion of his degree, JD worked in the engineering and fintech start-up industries while pursuing further studies in investments. JD holds an Engineering degree from Stellenbosch University and has passed all 3 levels of the CFA exams.