Monthly Commentary February 2024

Global equity markets delivered yet another strong showing during February. In the US, the S&P 500, Russel 2000 and Nasdaq composite all gained more than 5%. UK markets were more muted, with the FTSE 100 returning 0.45%. Performance in the East was strong, with Japan’s Nikkei returning 8%, and even Hong Kong’s Hang Seng Index ending the month almost 7% higher.

The Nikkei’s strong performance was despite the Japanese economy slipping into an unexpected technical recession, driven mainly by weaker than expected domestic consumption numbers. This also means that Germany has now overtaken Japan to become the world’s 3rd largest economy.

There should be little doubt that these returns continue to be fuelled by big tech and the expected advantages brought about by AI. Few earnings events were watched as closely as that of Nvidia, which delivered another big beat along with increased guidance, leading the S&P to a new all-time-high. Shortly before this, stocks in the US experienced a brief speedbump, as January’s CPI reading came in slightly higher than expected. The disparity between East and West is striking as Chinese CPI numbers again came in lower than expected. Prices in China are now in deflationary territory, as they decreased by 0.8% on a year-over-year basis. Chinese PPI numbers have been in deflationary territory for 16 months in a row.

Across the globe, geopolitical tensions continue to simmer. Russia’s war in Ukraine has reached a grim 2-year milestone and we seem to be no closer to its end. In fact, the prevailing narrative seems to be one of escalating tensions. Talks of NATO potentially sending soldiers onto Ukrainian soil were met with threats of nuclear warfare by the Kremlin, threats that should not be taken lightly. The Kremlin again showed its hand when its biggest political threat, Alexei Navalny, suddenly died in a Siberian penal colony. All of this has cast a new light on European and NATO military budgets, especially with odds increasing that Donald Trump could once again be elected as US president later this year.

In the Middle East, Israel’s planned offensive on Rafah has drawn widespread condemnation from world leaders, as this is one the last remaining refugee areas in Gaza. The United Nations have warned that a military ground operation in this area could lead to a massacre. It is also ruffling a few feathers of a long-standing peace deal with Egypt, as fears grow that the offensive will force Palestinians to flee into Egypt’s Sinai Peninsula.

Local investors were not able to partake in the global market euphoria in February. The JSE All Share index dropped by 2.4%, while the Resources index declined by almost 7%. Exacerbating these losses was the performance of the Rand, which declined by almost 3% against the USD over the course of the month.

The much-anticipated budget speech did not deliver a great deal of fireworks, with the main talking point being Government drawing R150 billion (of its total of R500 billion) from foreign gold and currency reserves over the next 3 years, as the budget deficit continues to grow.

Lastly, Cyril Ramaphosa declared 29 May as the official 2024 election date. This promises to be a very insightful day for South Africa’s future, as the ANC faces its biggest threat yet of being booted from power.

James Hayward BEng (Civil) CFA
Fund Manager

James (JD) is a fund manager of Flagship’s global funds, having joined in 2021 as an equity analyst. 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 is a CFA charter holder.