Equities market rallied in January as the market has been optimistic because of signs that the inflation data is moderating, China’s economy reopening, the weakening of the dollar relative to last year and lower energy prices. MSCI World Index was up 7.1% during the month, its highest return since October last year; while NASDAQ was up 10.7% which was one of its best months since 2000. The U.S. yield curve remains inverted with the 2-year treasury yields at 4.2% and the 10-year treasury yield at 3.5%. Treasury yields have fallen this month (meaning bond prices have gone up).

Emerging markets benefitted from the overall risk-on sentiment in the global market and the reopening of China’s economy. MSCI Emerging Market Index (8.7%) outperformed MSCI World. In South Africa, the Top40 Index was up 9.7% and the Capped SWIX Top40 Index was up 7.3% for the month. ALBI’s return was up 3% with yields falling across the maturity spectrum, with the 7–12-year segment outperforming (2.8%).

High quality companies with strong balance sheets and consistent earnings will generally perform better in periods of high rates and we expect to see this in 2023. As growth stocks are more sensitive to interest rate adjustments, they aren’t expected to perform well until we see a pivot from the Fed. With companies releasing earnings and the market starting to see the impact of rate increases and cost increases negatively impacting earnings, volatility is expected to increase; and we may see a drop in share prices. From a valuation’s perspective, there could be companies with strong fundamentals that are trading at more attractive levels. Should the U.S. enter a recession then we expect it to be mild as the strong balance sheets should cushion the blow. The global recession fears may keep the dollar strong in the first half of the year. The Eurozone will remain vulnerable to the energy market, especially the potential of natural gas prices going up which could increase inflation. With measures in place to protect households from energy price shocks and their post-Covid Recovery Fund (NextGenerationEU), we are anticipating a slow recovery in the second half of the year. China still has challenges ahead of it this year but we’re seeing less restrictive regulatory actions e.g., in the property market and gaming industry. With excess savings of more than 5trn yuan, recovery will stem from service spending and pent-up consumption. Domestic travelling and other related spending will benefit the most. High-end households will spend first then depending on the macroeconomics, we’ll see low to middle-income families start spending as situation improves. When America sneezes, the rest of the world catches a cold- this saying is true for emerging markets (EM). Most EM countries will be impacted by what’s happening in the developed market. Performance from emerging markets will most likely be supported by the China story amongst other factors.

Key events happening in SA for February is the State Nation of Address on the 9th and Budget Review on 22nd. Other key announcements will be the Financial Action Task Force (FAFT) decision on SA’s grey-list and the possible cabinet reshuffling which is expected to come.