Monthly Commentary September 2023

Most markets experienced another red month to end the 3rd quarter of the year. Globally, the MSCI ACWI lost 4.1%, while in the US, the S&P 500 and Nasdaq indices lost 4.77% and 5.77% respectively. In the East, Japan’s Nikkei lost 1.74%, and Hong Kong’s Hang Seng index dropped by 2.58%. The lone standout this month was London’s FTSE 100 index, which gained 2.4%. Interestingly, September almost exactly mirrors the returns for the 3rd quarter. All major indices, bar the FTSE 100, lost ground during the last 3 months.

On the commodity front, the price of Brent Crude oil continued to surge, gaining 9.7% during the month, and reaching mid $90/barrel, with prices north of $100 looking increasingly likely as OPEC+’s production cuts start to bite.

Not surprisingly, rising energy prices were the main contributor to US inflation making a turn in the wrong direction. After earlier falling to 3.2%, US CPI moved higher to 3.7% in September. This will renew pressure on the Fed to stay the course with higher interest rates. The US is also facing mounting pressure from a fiscal policy perspective, once again narrowly avoiding a government shutdown toward the end of the month.

Upward wage pressure will also continue to add pressure to inflation. After UPS delivery workers recently secured enormous pay packages, unionised workers in the US seem to be gaining strength. United Auto Workers, a union representing workers in the auto industry, rejected offers for a 21% pay increase. No doubt it did not help matters that President Joe Biden made history as the first sitting US president to join workers in the picket lines.

In some good news for global travellers looking for a last-minute December breakaway in a foreign location, North Korea has finally reopened its borders to tourists after COVID! You will, however, still have to bargain in an extra 2 days of quarantine upon arrival before continuing on your adventure.

Local investors also experienced a red month, with the JSE All Share Index dropping by 2.51%. The Resources index opened in the green however, gaining around 1.3%. From a currency perspective, moves were muted during September, as the Rand strengthened by 0.25% against the US Dollar.

From a political perspective, news flow was once again mostly negative. Cyril Ramaphosa took another disappointing step, deciding to blame Apartheid for the country’s current lack of civil engineers and town planners, this despite a mass exodus of these exact skillsets over the last 2 decades. Government also continues to steer us further toward economic trouble, as the July budget deficit of R144 billion was the largest since 2004. Despite the dire state of the fiscus, the ANC and its alliance partners are heavily opposed to any spending cuts, which is not surprising given that national elections are on the agenda for next year, and they are attempting to hold onto power.

Lastly, winter in the Western Cape has hopefully shown the last of its teeth as the province experienced massive flood damage for the second time in 2 months. The Department of Agriculture said that an initial estimate of only agricultural damages stood at more than R1.4 billion.

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.