Insights
South African 2024 Investment Outlook
Finishing the year on a strong note, South African markets followed global peers higher in the final quarter of 2023. For the full year, the FTSE/JSE All Share index was up 9.3%, which was marginally behind bonds (9.7%) but ahead of cash (7.8%). The standout performance for 2023 came from global equities, with the ACWI returning 31.3% (in rand).
Notable domestic developments over the past year include a moderation in the rate of price inflation (with the SARB holding the repo rate steady from the end of May – at 8.25%), GDP growth continuing to be hampered by electricity and logistical constraints, and the domestic fiscal situation coming (back) into focus.
We are of the view that domestic interest rates have likely reached their cycle peak and will probably be lower by the end of this year.
Both electricity and logistics are extremely important for the economy and their repair fall within the remit of Operation Vulindlela: Eskom is a bit further along its journey but there is also a keen focus within the Presidency on Transnet. There is much being done, but it will take time and the journey will not be straight forward.
The return of the twin deficits – so called for concurrent negative balances on the country’s fiscal and current accounts – is placing pressure on government’s finances (deficits need funding), which, in turn adds risk premia to the rand and sovereign bonds.
SA long bond yields followed those in in the US lower over the final quarter, translating into strong positive returns. The key driver of this was markets starting to expect looser monetary policy from key central banks – notably the Fed. Post this rally, the yield on bonds in SA have moved closer to fair value. They do, however, remain high on a
real basis.
Looking ahead, we believe the prognosis for SA equities in aggregate rests on elevated dividend yields and undemanding valuations (especially vs EM and world equites). We also believe that foreign (and potentially some domestic) investors are sitting on the side-lines waiting to gauge the outcome of the national elections.
The South African economy and financial markets face many macro and political risks (on the domestic front, as well as from abroad) in 2024. In the US, our offshore colleagues believe entrenched disinflation will lift real income growth and reduce the likelihood of a deep US recession, which they estimate at c. 30% for the next 12 months.
Download '4 Q 2023 SFIMSA Investment Letter FINAL'