May 2023 Update

Making the News

The old adage “sell in May and go away” held true particularly for SA investors. Escalating loadshedding concerns and US allegations of SA sending weapons to Russia weighed on the South Africa’s prospects in May.

The local equity market was down -3.9% (more purely focused SA domestic stock proxies such Mid-Caps & Small-Caps were down -7.8% and -5.1% respectively), bond yields rose on average 100bps across the yield curve, the Rand weakened significantly (8.4% to the USD), and the SARB hiked rates by an additional 50bps in response to the inflationary risks posed by the sharply weaker Rand.

The global backdrop was also challenging, causing EM sentiment to wane. The Fed hiked rates by an additional 25bps, thereby cumulatively increasing the FFR by 500bps in the current hiking cycle (levels last seen in 2007). Market anxiety regarding negotiations around the US debt ceiling (reflected in the short end of the Treasury curve as well as US CDS spreads) and a further decline in commodity prices (driven by global growth fears as well as disappointing China releases) also created a difficult backdrop.

International markets in USD terms were mixed over the month, with tech driving US markets. The Nasdaq was up +5.9% with the tech component of the S&P pushing the broad-based index to a +0.4% total return over the month. The firmness in the tech sector was driven by the growing excitement about the potential of generative AI.