November was a bumper month for financial markets as equity market increases gained momentum into month end, resulting in the most significant stock market gains in over a year. Added to that, US government bonds – a temperature gauge for what investors expect from central banks – gained ground on more optimistic interest rate expectations.

Stock markets in the US, Japan, and Europe achieved gains ranging from 4.7% to 7.8% during the month, while the UK stock market was the only developed world stock market to end November in the red, declining 1.6%.

South African equities lag developed market stock market rebounds this year

South African equities rode in on the tide of more positive global investor confidence in November, gaining around 9% for the month. But the performance of the domestic stock market remains well behind the developed markets for the year, with the benchmark JSE All Share Index ahead around 4% year-to-date – compared with 36% and almost 20% increases in the US Nasdaq and S&P 500 indices respectively. Meanwhile, Japan’s Nikkei Index has gained nearly 30%, and the Eurostoxx 50 Index has risen 15%.

South Africa’s equity market performance has been dampened by the ongoing challenges facing the country, which include:

• Loadshedding. Black Friday took on new meaning when Eskom announced Stage 6 over the weekend.
• Buckling transport infrastructure resulted in chaos at South Africa’s two largest ports, Durban and Richards Bay.
• Inflation surprising to the upside, rising to 5.9% versus expectations of 5.5%. This raised the prospect of the central bank keeping interest rates higher for longer.

Happier equity investors advised to maintain caution

Globally investors’ happier outlook for financial markets was premised on the steady progress central banks have made in reducing inflation rates and the likelihood that they may reduce interest rates as early as May next year.

Inflation in the US came down to 3.2% in October from 3.7% the previous month. European inflation declined to 2.9% in October 2023, down from 4.3% in September. And in the UK, the consumer price index fell to 4.6% from 6.7% the previous month.

Some analysts expressed concern that investors were becoming overoptimistic, citing the following reasons to be cautious:

• Concerns that consumers and homeowners are coming under visible pressure due to the steep rise in interest rates over the past year.
• Unrealistic expectations that interest rates will come down in the first half of next year, whereas central banks’ determination to sustainably reduce inflation could see rate cuts only coming through in 2025.
• Ongoing geopolitical uncertainty as a result of the Israeli-Palestinian war notwithstanding the temporary ceasefire at month end and the Russia-Ukraine war.

The bottom line is that investors are well-advised to remain cautious rather than getting swept up in the excitement of equity markets’ strong performance in November.

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