South African equities delivered a strong performance in August, with the FTSE/JSE All Share Index gaining +4.3% MoM and recording a second consecutive positive month, driven overwhelmingly by a sharp recovery in precious metal prices. Resources were the standout performer, with the FTSE/JSE Resources 10 Index surging +25.4% MoM as gold and PGM miners rallied alongside stronger underlying commodity prices. Gold advanced +9.7% MoM, while platinum and palladium rose +9.0% and +6.3% MoM respectively. In contrast, performance outside the resources sector was considerably weaker, with financials declining -1.7% MoM and industrials falling -5.8% MoM. The FTSE/JSE All Bond Index gained a modest +0.7% MoM, while SA-listed property declined -3.9% MoM. In US dollar terms, MSCI South Africa gained +11.2% MoM, significantly outperforming both MSCI World (+2.5% MoM) and MSCI Emerging Markets (+3.2% MoM), supported by the strong local equity market performance and a +2.6% MoM appreciation in the rand against the US dollar.
South Africa’s macroeconomic backdrop improved modestly in August as headline inflation retreated from its recent peak, although underlying inflationary pressures remained elevated. Headline inflation moderated to 4.3% YoY in July from 5.0% in June, helped by weaker-than-expected food and public transport inflation. Food inflation fell to just 0.6% YoY, supported by good harvests and favourable weather conditions, while the impact of the earlier foot-and-mouth disease outbreak on meat prices continued to fade. The domestic labour market also remained under pressure, with the official unemployment rate rising to 33.6% in the second quarter from 32.7% previously. Despite these challenges, local financial markets benefited from the weaker US dollar and renewed strength in South Africa’s key commodity exports, with the rand appreciating +2.6% MoM.
Global equity markets recovered strongly in August following July’s technology-led correction, supported by resilient economic activity, robust corporate earnings and a recovery in technology shares. The MSCI World Index gained +2.5% MoM, while MSCI Emerging Markets advanced +3.2% MoM. Technology shares regained momentum as semiconductor stocks recovered from their July sell-off and strong earnings helped alleviate some concerns around the sustainability of AI-related investment. However, volatility increased towards month-end as investors confronted renewed geopolitical tensions in the Middle East, persistent concerns around government debt and a more hawkish Federal Reserve. Commodity markets were particularly strong, with gold gaining +9.7% MoM to record its strongest monthly performance since January, while platinum (+9.0% MoM) and palladium (+6.3% MoM) also advanced. Brent crude remained volatile as hopes of an agreement to reopen the Strait of Hormuz faded, ending the month above US$90/bbl. The combination of geopolitical uncertainty, concerns around government indebtedness and a weaker US dollar also renewed investor interest in real assets and the broader “debasement trade”.
US equity markets rebounded in August as strong second-quarter corporate earnings and renewed enthusiasm for technology stocks outweighed elevated bond yields and geopolitical uncertainty. The S&P 500 gained +2.6% MoM, while the Nasdaq 100 rose +4.2% MoM as technology stocks recovered from July’s sharp sell-off. The Dow Jones Industrial Average gained +1.4% MoM. AI remained a key market driver, with strong results and guidance from Nvidia helping restore confidence in semiconductor demand, while Microsoft continued its recovery following strong cloud-related earnings. US economic activity also remained resilient, with the flash Composite PMI reaching its highest level in more than four years. Inflation data were somewhat more encouraging, with headline inflation moderating to 3.4% YoY in July from 3.5% in June and core inflation declining to 2.5% YoY. However, the Federal Reserve’s preferred core PCE measure remained elevated at 3.3% YoY. Fed Chair Kevin Warsh reinforced the central bank’s commitment to its 2% inflation target at Jackson Hole, prompting markets to increase expectations for further monetary tightening. The US 10-year Treasury yield ended the month broadly unchanged at approximately 4.74%, while the US Dollar Index declined -0.5% MoM.
European equity markets delivered mixed returns in August as resilient economic growth and improving corporate earnings were offset by renewed energy-price concerns and rising inflation. The MSCI Europe ex-UK Index rose +0.6% MoM, while Germany’s DAX advanced +2.5% MoM and reached a fresh record high. France’s CAC declined -2.1% MoM, weighed down by weakness in luxury shares as softer international demand raised concerns around the sector’s earnings outlook. Eurozone GDP expanded by a stronger-than-expected +0.4% QoQ in the second quarter, while inflation increased to 3.3% YoY in August from 2.9% in July, reflecting continued pressure from energy prices. UK equities underperformed, with the FTSE 100 declining -0.4% MoM after approaching record highs earlier in the month. UK inflation accelerated to 2.9% YoY from 2.6%, largely reflecting a sharp increase in regulated household energy prices, reinforcing expectations that the Bank of England will remain cautious about further monetary easing.
Emerging market equities recovered in August, with the MSCI Emerging Markets Index gaining +3.2% MoM as technology-heavy Asian markets rebounded from July’s semiconductor-driven correction. Taiwan was among the strongest performers as AI-related semiconductor shares recovered, while South Korean equities also stabilised following their sharp decline in the previous month. Chinese equity markets were more mixed. The Shanghai Composite gained +4.0% MoM as mainland equities benefited from continued policy support and renewed interest in domestic technology and AI-related companies, while Hong Kong’s Hang Seng Index declined -1.2% MoM amid continued weakness in the property sector and uncertainty around prospective policy changes. China’s economic data remained subdued, with the official manufacturing PMI improving to 49.8 in August from 49.2 in July but remaining below the 50-point threshold separating expansion from contraction. The non-manufacturing PMI remained at 49.0, highlighting continued weakness in domestic demand despite ongoing policy support.
The hedge fund remained in positive territory in August, as gains from the long book more than offset losses from the short book. Performance on the long side was driven primarily by positions across the gold, PGM and diversified mining sectors, including Barrick Mining, Harmony Gold, Wheaton Precious Metals, Northam Platinum and Anglo American. Gold miners Barrick Mining, Harmony Gold and Wheaton Precious Metals benefited from a strong rise in the gold price amid renewed geopolitical and inflation concerns, with solid operational results, strong cash generation and shareholder returns providing additional support. PGM producers also rallied as higher platinum, palladium and rhodium prices improved sentiment towards the sector, with Northam Platinum further supported by record earnings, a record dividend and an unsolicited takeover approach. Anglo American also added to performance as firmer commodity prices, particularly copper, combined with stronger underlying earnings and continued progress on its portfolio simplification strategy, reinforced confidence in the group’s long-term outlook. Within the short book, the fund’s index protection and selected short positions in gold ETFs (which are paired against some of our gold longs) detracted from performance during the month.