OUTvest Market Commentary - August 2022

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30 September 2022
The last few years have been unprecedented for financial markets. In the last 2 years we have experienced the worst pandemic in 100 years, a war and the highest inflation in decades. This has led global markets to navigate uncharted waters which brings about heightened volatility.

South African Markets

August saw the wheels of justice turning against former Saxonwold Shebeen regular attendees. Former Eskom and Transnet Chief Executive Officer and Chief Financial Officer Brain Molefe and Anoj Singh, appeared before the Specialized Crimes Court in Palm Ridge and were subsequently granted bail of R 50 000. The pair were joined by Regiment Capital executives Litha Nyhonyha and Niven Pillay. The group is accused of embezzling funds meant for 1064 locomotives, while Regiment capital is accused of enabling the heist on the R 54 billion tender. Molefe and Singh join other former Transnet executives such Siyabonga Gama in the dock.[i]

South Africa reported a trade surplus higher than market consensus in July. Bloomberg expected the number to be at R 19 billion, and the number came in at R 24 billion, somewhat surprisingly given the gloomy economic outlook. Exports dropped slightly as mineral sales were down 17% due to softer commodity prices. China remains the biggest trade partner as nearly 20% of imports came from China.

South Africa’s unemployment rate improved slightly in the second quarter of 2022. Despite the  number being at unsustainable levels, the 0.6% decrease is welcome. The biggest job gains were recorded in Community and Social Services (276,000), Trade (169,000), Finance (128,000), and Construction (104,000). However, there were job losses in Manufacturing (73,000) and Transport (54,000). The total number of people employed was 15.6 million in the second quarter of 2022. The Eastern Cape has the highest unemployment rate at 51.8%, with the expanded definition which includes people who have given up on looking for employment. Stringent labour relations, lack of critical skills, corruption, lack of service delivery at national and local government level, and distrust between government and business on economic policy are some of the reasons this number is so high.

The South African consumer price index rose to its highest level in 13 years as the inflation print increased to 7.9% from 7.4% the month prior. The South African consumer is under pressure as non-durable goods which makes up a huge chunk of most consumer basket recorded double digit increase of 14.4%. Oils & fats continue to register the highest annual rate of increase among food products, accelerating to 36.2% in July from 32.5% in June. Even though inflation is at a 13-year high, it is estimated that inflation in South Africa has peaked or nearing the peak, as most of the inflation drivers such as oil (-33%), wheat (-35%), and corn (-33%) have declined from their recent highs.[ii]

The South African financial market is going through structural change as more and more companies delist. The trend of delisting in the JSE continues as Massmart becomes another major entity to delist as parent company Walmart plans to take over the company private. The JSE had 811 companies listed in 1999 while currently the bourse has 288. In 2021, 25 companies were delisted from the JSE. Grindrod Shipping, Royal Bafokeng Platinum, Distell, PSG, and Medclinic are set to delist as well.[iii]

[iv]The roller coaster markets we have experienced throughout the year continued into August. The local bourse started like a house on fire, as risk on sentiment filtered through the market. The JSE All Share was up nearly 5% until the Fed’s hawkish tone spooked global markets, and it was off again. The JSE closed nearly 2 % for the month.

Massmart was the star performer in the local exchange. The owner of Game, Makro and Builders Warehouse received an offer from parent company, Walmart, for the remaining shares the US giant does not already own. The share closed more than 57% for the month of August, however the share is still 67% down from the 2011 highs when Walmart first showed interest.

Thungela, once again, continued its stellar performance as the energy crunch continued in Europe, the share was up nearly 13% in August, and more than 1200% since it was unbundled from the Anglo stable.

The tumble in iron ore prices filtered into South Africa’s biggest iron ore producers – Kumba lost more than 22% in August alone. Kumba reported first half results, revenue dropped more than 30% and profits by nearly 50%.

The recent high inflation print has elevated as inflation linked-bonds outperformed sovereign bonds by more than 1.5% in August and nearly 9% for the year.


US Markets

[v]The macro picture in the United States continues to be contradictory – the world’s biggest economy created 528 000 jobs in July, while the economy is believed to be in a recession. [vi]This has divided economic theorists, John Hopkins University economics professor and Yale’s Stephen Hanke believe the US economy is headed into a deep recession in 2023. While noble Prize winner Richard Taylor believes, that the current situation does not resemble any recession as unemployment is still low and job vacancies are relatively high.

US inflation seem to have peaked, as inflation in July was slightly lower than the multi-decade high of 9.1% in June. Even though the July 8.5% number is relatively high, on a monthly basis, the consumer price index was flat as energy prices broadly declined 4.6% and gasoline fell 7.7%, according to the Bureau of Labour Statistics. That offset a 1.1% monthly gain in food prices and a 0.5% increase in shelter costs[vii].

The Federal Reserve presented a hawkish (rising interest rates) tone in the July policy meeting statement.  The Fed indicated it is willing to go the extra mile in order to bring inflation back to its target of 2%. This suggests the Fed could inflict economic destruction as it tries to get inflation under control.

US equities carried over July’s stellar performance into August, however, that took a U-turn when the market was spooked by Jay Powell’s hawkish stance. Growth shares in the IT sector were hardest hit as valuation were forced to be revised further. All sectors of the market were down in August in exception for energy and utility shares.


European Markets

[viii]Europe is arguably facing the worst drought situation in 500 years. Europe is being hit by a climate-driven drought crisis, with 63% of land in the European Union and the United Kingdom being affected, the European Drought Observatory reports. Among the countries struggling: France, Spain, and Italy, with some of their regions being critically affected. The Drought could exacerbate Europe’s food inflation as the Russia-Ukraine conflict also contributed to the supply shortage of soft commodities.

[ix]Eurozone inflation hit a fresh record high in August, inflation came at 9.1% for the 19-member block from 8.9% the previous month. The fallout from Russia’s invasion of Ukraine has sent wholesale gas and electricity prices surging to record levels in Europe in recent weeks and pushed up the cost of fertilizer and other agricultural commodities, such as wheat and corn. Christine Largarde raised interest rates by 75 basis points in the September ECB meeting, as European central bankers try to tame the hot inflation number.

Despite all the challenges Europe currently facing, the Eurozone’s economy grew by 3.9% year-on-year in the second quarter of 2022. However, there are fears that the energy shortage and drought could throw the 19-member bloc into a recession in 2023.

European [x]markets followed the global trend, as financial markets tumbled as hawkish tone from central bankers and fears of recession sent financial markets nose-diving. Both Eurozone sovereign bonds and equities closed nearly -5% in August.


Emerging Markets

The Chinese government announced a $ 146 billion stimulus package aimed at infrastructure projects. This comes as Beijing tries to revive the world’s second-largest economy as strict lockdown restrictions and property sector woes dampen economic growth prospects.  

Turkish central bankers continued their less than textbook monetary policy. Despite inflation sitting at 80% the Central Bank of the Republic of Turkey (CBRT) cut rates to 13%. This led the Turkish Lira to weaken against the Greenback to its weakest level in history. Turkish Central Bankers are bowing to pressure from politicians, as President Recep Tayyip Erdogan dictates monetary policy.[xi]

The Brazilian Central banker seem to have won the fight against inflation as the aggressive interest rates hikes, coupled with a steep decline in fuel prices has helped Brazil to record the lowest inflation number in 42 years. The Rio de Janeiro-based Brazilian Institute of Geography and Statistics (IBGE) reported that the Consumer Price Index (Ipca) showed a -0.68% inflation in July[xii]. 

[xiii]Emerging markets posted a mixed performance, with the S&P Emerging BMI advancing by 1.5% in August. Turkey (+19.5%) was a clear outperformer, while Poland (-10.8%) decreased the most.


A Note to OUTvest Clients

The last few years have been unprecedented for financial markets. In the last 2 years we have experienced the worst pandemic in 100 years, a war and the highest inflation in decades. This has led global markets to navigate uncharted waters which brings about heightened volatility.

If we draw a lesson from history, market crashes and volatility are functions of the market and economies. We have witnessed markets crash: in 1929 during the great depression, 1987 (Black Monday) where the S&P and the Dow Jones lost more 20% in one day, and again in in 1997 during the Asian financial crisis, 2002 during the dot com bubble, the 2008 financial crisis and March 2020 as the COVID-19 rattled financial markets. Yet we have seen recoveries from all these events

We acknowledge that performance over the short-term has been soft in light of uncertain markets. However, we are long-term investors with a long-term view. It is important to understand that markets go through many cycles – some short and some longer – and it is often best to remain invested and avoid changing investment philosophy in the wake of short-term noise. We remain confident that our funds are well positioned to capitalise on long-term trends and growth.



OUTvest is an authorised FSP.  All investments are exposed to risk, not guaranteed and dependent on the performance of the underlying assets.  The above does not constitute financial advice.  Please ensure to contact OUTvest or your financial advisor for advice on your personal financial goals.  Collective investment schemes are generally medium to long-term investments.


[i] https://www.news24.com/news24/southafrica/news/brian-molefe-anoj-singh-among-four-people-arrested-in-r93m-locomotive-corruption-case-20220829.
[ii] https://www.sabcnews.com/sabcnews/cpi-continues-on-upward-trajectory/
[iii] https://www.iol.co.za/business-report/companies/jse-is-bleeding-one-in-10-local-listed-companies-forecast-to-delist-this-year-dbc7f63d-1819-4137-b216-044756c09cfd
[iv] Infront Professional services, OUTvest. This performance does not take into account fees, including transaction or management fees.
[v] https://www.investopedia.com/us-economy-adds-528000-jobs-in-july-6374115
[vi] https://www.investopedia.com/us-economy-adds-528000-jobs-in-july-6374115
[vii] https://www.cnbc.com/2022/08/10/consumer-prices-rose-8point5percent-in-july-less-than-expected-as-inflation-pressures-ease-a-bit.html
[viii] https://www.euronews.com/my-europe/2022/08/11/desperate-for-water-european-drought-crisis-in-pictures#:~:text=Europe%20is%20being%20hit%20by,their%20regions%20being%20critically%20affected
[ix] https://tradingeconomics.com/euro-area/inflation-cpi
[x] Infront Professional services, OUTvest. This performance does not take into account fees, including transaction or management fees.
[xi] https://ewn.co.za/2022/08/18/it-s-economic-suicide-turkey-cuts-interest-rate-despite-80-inflation
[xii] https://agenciadenoticias.ibge.gov.br/en/agencia-press-room/2185-news-agency/releases-en/34599-ipca-drops-0-68-in-july
[xiii] sp-global-equity-indices-monthly-update-202208.pdf (spdji.com)
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