July 2024 Update

Making The News

Rotation into small caps

Global equities continued to rise in the second half of 2024, but the drivers of performance shifted significantly from the first half of the year. The “Magnificent Seven” tech mega caps, which contributed half of the MSCI World index’s returns in the first half, collectively declined by 2% MoM in July. Investors began rotating out of these mega cap stocks and into small caps (Russel 2000, +10.1%), influenced by growing expectations of a rate cut and the second-quarter earnings reports.

Increasing rate cut expectations

US inflation has cooled faster than expected for the second consecutive month, fuelling investor optimism regarding potential rate cuts by the Federal Reserve. Markets are now anticipating 0.25% rate cuts at each of the three remaining Fed meetings in 2024. This shift in expectations led to a 0.4% drop in the US government’s 10-year borrowing rate, which ended July at just above +4%. Lower rates globally boosted the Bloomberg Global Bond Index by +2.8% for the month, while the US dollar weakened against most major currencies.

China hinders Emerging Market returns

Emerging markets posted a modest gain in July (MSCI EM +0.4%), driven by strong performances in India and South Africa (Nifty 50 and FTSE/JSE Capped SWIX both +4% MoM). However, this was offset by another challenging month for Chinese stocks listed abroad (Hang Seng China Index and Nasdaq Golden Dragon China Index both -2% MoM), as disappointing economic data, including weaker-than-expected 2Q24 GDP and June retail sales, which revealed no signs of recovery in consumer spending. The announcement that President Joe Biden would not seek re-election in November’s race against Donald Trump also heightened concerns about the potential for renewed US-China trade tensions.

SA Inc. rally continues into July

Domestic equities remained among the top-performing emerging markets in July, with the FTSE/JSE Capped SWIX Index rising 4.1% month-on-month, driven by continued post-election optimism. Domestic-focused stocks, particularly banks and general retailers, played a significant role in the market’s strong performance, each gaining 6% over the month. Meanwhile, the SA government’s 10-year bond yield fell below 11% for the first time since early 2023, tracking global bond yield declines and boosting the JSE All Bond Index to a 4% return for the month.