Offshore Equity Markets Soar: A Strong First Half of 2024

Although everyone is talking about this market sell-off and where it could go, the build-up to the volatility in the markets was a strong first half of the year. Siyabulela Nomoyi of Satrix reminds us of the journey the markets took us on for the first half of 2024.

The first half of 2024 was remarkable for offshore equity markets, driven by tech advancements, rate cuts, and pivotal elections. Investors saw robust returns, particularly in developed markets, while emerging markets also posted gains. This period was defined by the stellar performance of tech giants, shifts in monetary policy, and political changes influencing market dynamics.

Here’s a quick snapshot of what the year has delivered to date:

Equities

1. Tech Dominance: Nvidia became the world’s largest company by market value after its share price nearly doubled this year. Nvidia’s significant presence in major indices (8% of the Nasdaq 100, 7% of the S&P 500, and 5% of the MSCI World Index) drove strong returns in offshore equities. By the end of June, the S&P 500 was up 14.9%, the Nasdaq 100 up 17.2%, and the MSCI World Index up 11.6% in rand terms.
2. Emerging Markets Lag: Emerging markets saw positive returns but lagged behind developed markets. The MSCI Emerging Markets Index was up 7.3% in rand terms, trailing the MSCI World Index by 4.3%. This was mainly due to China, which makes up 25% of the index and only rose 4.6%, compared to India, which rose 16.7% and makes up 19% of the index.
3. South Africa’s Performance: South Africa, making up 3% of the MSCI Emerging Markets Index, also had positive returns but couldn’t keep pace with US-based tech companies. The FTSE/JSE All Share Index was up 5.8%, driven by listed property shares, with the South African Property Index (SAPY) up 9.6% and the FTSE/JSE Financial Index up 8.8%.
4. European and UK Markets: European and UK markets experienced some volatility, with the European Central Bank (ECB) lowering rates by 0.25%. The ECB president indicated no further rate cuts were planned. In the first half of the year, the MSCI Euro Index was up 5.6% and the MSCI UK Index was up 6.8%, both in rand terms.

Rates and Reactions

The world carefully watched worldwide central banks’ monetary policies:

Interest Rate Cuts: The pace of rate cuts varied, with Mexico and Switzerland reducing borrowing rates in the first quarter, while the ECB lowered rates by 0.25% in the second quarter. US markets expect the US Fed to cut rates by year-end, bolstered by a low June inflation print of 3.0%, though the upcoming US elections add uncertainty.

Bonds’ Reaction: The FTSE/JSE All Bond Index was up 5.6% over six months, with the South African Reserve Bank (SARB) keeping rates unchanged in May. Offshore bonds lagged, with the Bloomberg Aggregate Bond Index down 3.3% in rand terms. The US 10-year Treasury Bond Note Yield was up 4.4% at the end of June, boosting investment-grade floating notes and higher-yielding corporate bonds. However, US Treasuries and long-term US aggregate bonds created some drag, resulting in underperformance.

A Big Election Year

In South Africa, the ANC lost its majority, leading to a Government of National Unity and the re-election of President Ramaphosa, boosting SA stocks. Mexico elected its first female president, but fiscal concerns led to a 5% drop in the peso and an 8% fall in the IPC Index. In India, political changes caused volatility, with the Nifty50 Index dropping 6% post-election but maintaining strong equity returns overall. In the US, uncertainty prevails with President Biden officially withdrawing from the race. Trump’s policies are viewed by many economists as potentially inflationary, which may prolong higher-for-longer inflation.

ETF Exposure: What Satrix has seen so far

The best-performing Exchange Traded Funds (ETFs) tracked offshore indices with double-digit returns, led by the Satrix Nasdaq 100 ETF with a 17.2% increase. The Satrix India and Satrix S&P 500 ETFs followed with returns of 16.7% and 14.9%. ETFs tracking the MSCI World and MSCI World ESG indices were up 11.6% and 10.5% respectively.

On the vanilla side, the Satrix Property ETF’s index was the best performer, up 9.5%. On the factor side, the Momentum factor index was the best performer, up 6.0%, followed by the Low Volatility index, tied to the Satrix RAFI 40 ETF, up 5.3%.

Investor Insights and Actions

Investors should consider strategic portfolio diversification with offshore exposure, including emerging market jurisdictions such as India. It’s critical to keep an eye on political developments and interest rate shifts, while also committing to stay the course to avoid knee-jerk reactions.

SatrixNOW offers easy access and exposure to local and offshore ETFs and funds.

This article was first published here

*Satrix is a division of Sanlam Investment Management