Market review - July 2020
Covid-19 economic shock and stimulus reflected in financial markets
CAPITAL MARKETS RESPONDED dramatically to the unprecedented levels of fiscal and monetary stimulus that most developed markets unleashed in response to the Covid-19 lockdowns. After the record decline in equity markets during the first quarter of 2020, a record-breaking recovery followed in the second quarter (Q2-20).
The recovery was led by technology shares, reflected in the NASDAQ 100’s return of 30%. The MSCI All Country World Index (ACWI) recovered 19.2% in Q2-20, while the MSCI Emerging Markets Index (EM Index) was up 18.1%. The ACWI and EM Index are both still down 6% and 9.8%, respectively, year to date. Over 12 months, the ACWI is up by 2%, but the EM Index declined by -3%. The FTSE World Government Bond Index rose 2% in Q2-20, delivering a year-to-date return of 4%. This further tightening in bond markets leaves the benchmark US 10-year government bond with a yield well below 1%. The gold price continued its upwards trajectory (+12.9% in Q2-20 and +26.3% over the past 12 months), given investor concerns around building risks in the financial system and monetary debasement. All international returns are expressed in US dollar terms.
The rand strengthened slightly against the US dollar (2.9% in Q2-20) but has still declined meaningfully year to date (-19.3%), reflecting the damage the Covid-19 economic shock has wrought on an already-weak economy. The All Bond Index responded to assertive policy actions by the South African Reserve Bank and returned 9.9% during the quarter, bringing the year-to-date number into positive territory. Over one year, the bond return was behind inflation at 2.9%.
Along with its global counterparts, the FTSE/JSE Capped Shareholder Weighted Index experienced a significant rebound during Q2-20 (+21.6%) but is still down -10.7% for the year to date. All sectors saw rising returns. The resources sector (+41.2%), due to its high offshore exposure; tighter markets as a result of Covid-related supply shocks; an improving demand outlook due to a resurgent Chinese economy; and the easing of restrictions elsewhere, outperformed industrials (+16.6%), financials (+12.9%) and property (+20.4%).
Note: All international returns are expressed in US dollar terms and all domestic returns are in rand.