South African markets delivered a mixed performance in May, with bonds outperforming equities for the first time since November 2024. The FTSE/JSE All Bond Index gained +2.9% MoM as bond yields declined, while the FTSE/JSE All Share Index slipped -0.5% MoM and SA-listed property posted a modest +0.2% MoM return. Equity market performance remained constrained by weakness in the resources sector, as lower precious metal prices weighed on mining shares. The FTSE/JSE Africa Resource 10 Index declined -1.7% MoM, marking a third consecutive month of weakness, while industrials fell -0.9% MoM. Financials were the relative bright spot, rising +0.8% MoM, supported by banks and insurers. Unlike many global peers, the South African market continued to benefit less from the global AI-driven rally due to its limited exposure to large technology companies. In US dollar terms, MSCI South Africa rose +2.2% MoM, supported by a stronger rand, but still underperformed both MSCI World (+4.4% MoM) and MSCI Emerging Markets (+9.5% MoM).
South Africa’s macro backdrop became more challenging in May as inflationary pressures continued to build. Headline inflation accelerated to 4.0% YoY in April, up from 3.1% previously, while core inflation rose to 3.6% YoY, reflecting the ongoing pass-through of higher global energy prices. Against this backdrop, the South African Reserve Bank raised the repo rate by 25 basis points to 7.0%, citing heightened inflation risks and the potential for second-round effects. Despite the rate hike, the tone from policymakers was less hawkish than markets had anticipated, with the SARB highlighting South Africa’s relatively strong starting position, including improved fiscal metrics, elevated real interest rates and continued structural reform progress. Bond markets responded positively, with the 10-year government bond yield declining from approximately 8.8% to 8.4% during the month, supporting the strong performance of local fixed income assets. The rand also strengthened +2.8% MoM against the US dollar, aided by both higher domestic interest rates and a softer global macro backdrop.
Global equity markets extended April’s powerful rally in May, supported by resilient economic data, strong corporate earnings and growing optimism that geopolitical tensions in the Middle East may gradually de-escalate. The MSCI World Index gained +4.4% MoM, while emerging markets significantly outperformed, with the MSCI Emerging Markets Index surging +9.5% MoM. Investor sentiment was boosted by continued enthusiasm around artificial intelligence, particularly as semiconductor-related companies delivered strong earnings and reinforced expectations of sustained AI infrastructure spending. Growth stocks once again outperformed value stocks, reflecting renewed confidence in long-duration earnings streams. Commodity markets, however, painted a different picture. Brent crude oil declined -19.3% MoM as investors increasingly priced in a potential US-Iran agreement and the eventual reopening of the Strait of Hormuz. Precious metals also remained under pressure, with gold falling -1.7% MoM and platinum declining -3.4% MoM, extending the correction that began after the strong rallies earlier in the year.
US equities continued to lead global markets higher in May, driven by another exceptionally strong earnings season and ongoing enthusiasm surrounding artificial intelligence. The S&P 500 rose +5.1% MoM, while the Nasdaq gained +8.4% MoM, both reaching fresh record highs. Over 80% of S&P 500 companies exceeded earnings expectations, with technology companies once again dominating performance. Semiconductor shares were a particular standout, supported by evidence that hyperscaler capital expenditure plans continue to accelerate. NVIDIA remained a key market driver after reporting strong results and highlighting substantial growth in AI-related investment. Meanwhile, the broader technology sector benefited from improving confidence that AI spending remains in the early stages of a multi-year investment cycle. On the policy front, inflation remained elevated, with headline CPI rising to 3.8% YoY. Against this backdrop, investors also digested the appointment of Kevin Warsh as the new Federal Reserve Chair, with markets awaiting further clarity on how monetary policy may evolve under his leadership. Despite higher inflation and rising Treasury yields, strong earnings growth and easing geopolitical concerns helped propel US equities to new highs.
European equity markets advanced in May but continued to lag both the US and several Asian markets. The MSCI Europe ex-UK index rose +3.4% MoM, supported by solid corporate earnings and improving investor confidence as energy prices retreated from their March peaks. Germany’s DAX gained +3.3% MoM, while France’s CAC delivered a more modest +0.8% MoM return. However, economic data remained relatively weak, with eurozone growth indicators softening and inflation accelerating to 3.2% YoY, largely due to the lingering impact of higher energy costs. Europe remains particularly vulnerable to energy market disruptions given its dependence on imported energy. In the UK, equity markets were broadly flat, with the FTSE 100 rising just +0.3% MoM. Inflation surprised on the downside, slowing to 2.8% YoY, aided by lower energy costs and government support measures, although investors remain cautious about the durability of this improvement should energy markets tighten again.
Emerging markets were once again the standout performers globally, extending their leadership over developed markets. The MSCI Emerging Markets Index gained +9.5% MoM, driven overwhelmingly by technology and semiconductor-related stocks. South Korea (+28.5% MoM) and Taiwan (+14.9% MoM) were the strongest-performing major markets, benefiting from their central role in the global AI supply chain. The renewed AI trade, fading concerns around monetisation and continued hyperscaler spending provided a powerful tailwind for emerging market technology shares. China’s performance was more mixed. While technology companies reported resilient earnings and reiterated commitments to AI investment, broader economic data remained uneven. Manufacturing activity softened slightly, while domestic consumption remained sluggish. As a result, Chinese equity markets underperformed the broader emerging market complex, with the Shanghai Composite declining -1.1% MoM and the Hang Seng falling -2.3% MoM. Nevertheless, improving global risk appetite, recovering capital flows and attractive valuations continued to support the broader emerging market asset class.
The hedge fund ended the month in negative territory, primarily as detractors from the short book outweighed gains from the long book. Performance on the long side was driven by positions in Grindrod, Barrick Mining and Piraeus Financial, while Reinet Investments and Tencent were the largest detractors during the month. Within the short book, gains were generated primarily from positions in retailers; however, these were more than offset by losses from index protection and positions in the telecommunications and diversified mining sectors.