Monthly Commentary July 2023

Equity markets delivered strong performances in July. In the US, the S&P 500 was up 3.2%, while the Nasdaq composite gained 4%. Globally, the MSCI ACWI increased by 3.69%, bolstered by especially strong performance in emerging markets as the MSCI Emerging Market index gained 6.3%. Performance in China was particularly strong, with the Hang Seng index gaining 7.2%. Commodities also had a strong month, with Brent Crude increasing by 14%, and copper by 7%. Natural gas was weak however, declining 5.8%

Consumer prices in the US continued to decline in July, coming in at 3% higher on a year-over-year basis. This compares with forecasts of 3.1%, and last month’s reading of 4%. Despite prices cooling, the US economy still delivered remarkably resilient growth numbers, with quarterly GDP coming in above estimates, prompting the Federal Reserve to restart its’s hiking cycle. The result is the highest borrowing rate in 22 years. Despite the increase in rates, some US banks have now lowered their probability of the world’s largest economy slipping into a recession.

The situation in the East seems less rosy. Chinese economic data continues to come in below expectations, as the manufacturing hub struggles to restart after a lengthy period of interruptions, most notably due to Covid and the construction crisis. China’s political stance is also making more of its partners slightly uneasy. The German government released its first ever “Strategy on China” document, which states that as a result of China’s changing landscape and political decisions, Germany’s approach to China also has to change. This has great significance, as China is Germany’s most important trading partner.

Lastly, the effects of global warming were on full display during July, as wildfires and scorching temperatures caused havoc in large parts of North America and Europe. Despite the data not being confirmed yet, scientist seem certain that it was the hottest month in human history.

The Rand had another strong month, gaining 5.3% against the dollar, which follows a gain of 4.4% last month.  Local equities also delivered strong performance. The JSE All Share Index was up 4%, while the JSE financials index gained 7.1%.

Unfortunately, as is often the case, the good news stops when we get to politics. Details emerged in July of Deputy President, Paul Mashatile, and his luxurious lifestyle, all paid for by his connections state capture and tender-tycoon connections. It seems tender money received for work that was never completed, has a strange knack for finding luxury houses and the pockets of the ANC politicians.

Cabinet also agreed to another R6.2 billion bailout of the SA post office. Taxpayers will be delighted to know they continue to foot the bill for mail they will never receive.

A silver lining is private enterprise again coming to the rescue, as 115 CEO’s signed new pledges to assist government with expertise and funding in a bid to get stumbling economy back on track.

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.