Monthly Commentary June 2023

Equity markets delivered strong results to end of the 2nd quarter of 2023. The MSCI ACWI returned 5.8%, while in the US both the Nasdaq and S&P 500 were up by 6.6%. Markets in the East also performed well, with Japan’s Nikkei gaining 7.5% and Hong Honk’s Hang Seng Index ending the month 4.5% higher.

One of the factors contributing to these strong returns was the Federal Reserve’s decision to pause its rate hiking cycle for the first time in more than 15 months, a period within which the lending rate was increased 10 times. While inflation in the US has dropped to 4% year-over-year from a peak of more than 9% in 2020, Core PCE – the Fed’s preferred inflation index – remains stubbornly high. It currently sits at 4.62% compared to its highest level of 5.42% during 2022. In their latest commentary at the beginning of July, the Fed also signalled more hikes might be on the way.

Given the strong equity market performance, June was a tough month for those with short interests. In the US, short interest breached $1 trillion, the highest level since April 2022. As a collective, the group has now reportedly incurred losses of more than $120 billion in the first half of the year, with more than half of that coming in the first half of June.

In what was probably the biggest news event of the month – the world held its collective breath as it looked for a fleeting moment like a military coup was underway in Russia as Yevgeny Prigozhin, leader of the notorious Wagner mercenary group marched his men towards Moscow. In the end, it all ended in a whimper – but it will be fascinating to see the effect that this very public act of dissent has on Putin’s image in Russia.

Locally, the Rand had its strongest month in a while, gaining 4.4% against the greenback. Local investors also experienced decent returns, with the JSE ALSI gaining 1.3% during the month. Investors in the resource sector had less to smile about, as the JSE Resource index declined by more than 7%.

Part of the Rand’s strong performance would have been the possibility that the looming BRICS summit might not be held in South Africa after all – with China or a virtual conference being possible alternatives. The scrutiny is far from over though, as there is bipartisan support from US Republicans and Democrats for stripping South Africa of its right to host the 2023 AGOA summit – citing our increasing military connections with Putin’s regime.

And lastly, given the ANC’s track record of roaring successes in the administration of complicated endeavours consisting of thousands of stakeholders, Parliament recently voted to move forward with the controversial National Health Insurance bill. If adopted successfully – this will no doubt destroy the private medical aid industry, and while many hurdles remain, each one cleared takes us closer to an inevitable series of legal challenges from civil society and private enterprise alike.

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.