August 2024 Update
Making The News
- Recession fears weigh on the US
Global equities started off August on a rocky note, dropping -6% in the first three trading days before rallying back to end the month positively. The MSCI World Index saw a +2.7% increase for the month, bringing its year-to-date performance up to +16.7%. The initial risk aversion was triggered by weak US jobs data, leading to concerns of a potential recession as the US unemployment rate unexpectedly jumped to 4.3%.
- Unwinding carry trades in Japan
Another source of August’s volatility was the Bank of Japan’s unexpected decision to slow quantitative easing and raise interest rates from 0.1% to 0.25%, which caused the yen to rise sharply against major currencies. The fluctuating currency combined with shifting interest rate expectations due to a weak US employment figure, prompted a sudden unwinding of the Japanese carry trade. This drove a dramatic selling of Japanese stocks, which at one point fell -20% before mounting a comeback.
- Interest rate expectations buoy returns
The possibility of interest rates decreasing was beneficial for sectors of the stock market that typically have high dividend payouts, such as consumer staples and real estate investment trusts (REITs), which both saw a +6% increase month over month in the S&P 500. Emerging markets (EMs) underperformed developed markets, but still experienced a +1.6% increase in August, bringing their year-to-date performance close to double digits at +9.5%. Taiwan Semiconductor Manufacturing Company (TSMC) is now the largest component of the MSCI EM Index, accounting for 9.3% of the index and contributing significantly to the overall performance. Brazil, which had lagged in the first half of the year, saw a strong performance in August with a +6.5% increase month over month.
- SA exuberance continues
South African equities showed continued strength post-election, with the FTSE/JSE Capped SWIX Index increasing by +1.3% MoM. Despite a decline in mining stocks weighing on the local bourse, stocks focused on the domestic economy saw a +6% MoM increase and have rallied by approximately +26% over the past three months. The South African government’s 10-year borrowing rate also decreased to 10.6% per annum in August, down from pre-election levels of over 12% per annum. Additionally, the latest local inflation data suggests the South African Reserve Bank may follow global central banks in implementing rate cuts. Core inflation in South Africa was reported at 4.3% year-over-year in July, below the SARB’s target range and economist expectations.
