South African equities declined modestly in October, recording a second consecutive negative month as weakness in precious metal miners offset stronger performance from domestically focused sectors. The FTSE/JSE All Share Index declined -0.8% MoM, while the Resources 10 Index fell -9.2% MoM as gold and PGM miners remained under pressure. Gold declined -6.8% MoM, while platinum and palladium fell -16.4% and -19.0% MoM respectively. In contrast, financials gained +2.7% MoM and industrials advanced +3.7% MoM, supported by stronger performance from telecommunications, insurers and selected retailers. Local bonds outperformed equities, with the FTSE/JSE All Bond Index gaining +2.1% MoM, while SA-listed property rose +0.6% MoM. In US dollar terms, MSCI South Africa declined -4.1% MoM, outperforming MSCI Emerging Markets (-8.1% MoM) but underperforming MSCI World (-0.8% MoM).
South Africa’s macroeconomic backdrop remained relatively resilient in October, with inflation continuing to surprise modestly to the downside while the Medium-Term Budget Policy Statement (MTBPS) reaffirmed government’s commitment to fiscal consolidation. Headline inflation increased marginally to 4.5% YoY in September from 4.4% in August. The MTBPS left the projected budget deficit broadly unchanged at 3.7% of GDP for FY2027 and 3.3% for FY2028, with slightly stronger tax revenue allowing government to increase capital expenditure, reduce the fuel levy further and bolster contingency reserves. National Treasury also announced a larger-than-expected reduction in weekly fixed-rate bond issuance, providing support to the local bond market. The 10-year government bond yield declined by approximately 20 basis points to end the month at c. 8.8%, while the rand weakened -1.7% MoM amid broader US dollar strength.
Global equity markets declined for a second consecutive month in October as a sharp sell-off in AI-related technology shares and emerging markets offset gains across more defensive sectors. The MSCI World Index fell -0.8% MoM, while MSCI Emerging Markets declined a much sharper -8.1% MoM. Concerns around the scale of AI-related capital expenditure and whether these investments would generate sufficient returns weighed on technology and semiconductor shares, prompting a rotation towards energy, healthcare, consumer staples and utilities. Commodity markets remained highly divergent. Brent crude surged +13.6% MoM to approximately US$118/bbl as geopolitical tensions in the Middle East continued to threaten energy supply, while precious metals weakened further, with gold declining -6.8% MoM and platinum and palladium recording double-digit losses.
US equity markets delivered mixed returns in October as a sharp reversal in mega-cap technology and semiconductor shares masked considerably stronger performance across the broader market. The S&P 500 declined -0.9% MoM and the Nasdaq 100 fell -6.7% MoM, while the Dow Jones Industrial Average gained +1.7% MoM as investors rotated towards more defensive and value-oriented sectors. US inflation remained elevated, with headline CPI accelerating to 3.7% YoY in September from 3.4% in August and core PCE inching up to 3.1% YoY. The Federal Reserve left rates unchanged at its October meeting following September’s 25 basis point increase, while the US 10-year Treasury yield declined from the previous month’s highs to end October at approximately 4.9%.
European equity markets proved relatively resilient in October as their lower exposure to technology and greater weighting towards defensive sectors provided some insulation from the global AI-related sell-off. The MSCI Europe ex-UK Index gained +1.5% MoM, while Germany’s DAX advanced +2.5% and France’s CAC 40 edged +0.1% higher. Political and fiscal uncertainty in France remained a headwind, contributing to higher French government borrowing costs and continued pressure on financial shares. Eurozone inflation increased to 4.0% YoY in October, while the European Central Bank left interest rates unchanged at its October meeting. UK equities were among the stronger developed markets, with the FTSE 100 gaining +1.2% MoM as its relatively high exposure to energy and defensive sectors benefited from the rotation away from technology. UK inflation accelerated further to 3.5% YoY in September from 3.1% previously, reflecting continued pressure from higher energy and transport costs.
Emerging market equities came under significant pressure in October, with the MSCI Emerging Markets Index declining -8.1% MoM as the sell-off in AI-related technology shares weighed particularly heavily on Asian markets. South Korea’s KOSPI and Taiwan’s Weighted Index fell -16.2% and -5.7% respectively as investors reassessed the scale and potential returns of AI-related capital expenditure, despite continued strength in underlying semiconductor demand. Chinese equities weakened materially, with the Shanghai Composite declining -6.3% MoM and Hong Kong’s Hang Seng Index falling -5.4% MoM amid a sharp unwinding of positions in domestic AI and semiconductor shares and continued concerns around the underlying economy. China’s economic data also softened, with the official manufacturing PMI declining to 49.3 in October from 50.1 in September, while the non-manufacturing PMI fell to 49.7 from 50.2, placing both measures back below the 50-point threshold separating expansion from contraction.
The hedge fund was negative in October, as detractors from the long book outweighed gains from the short book. On the long side, contributions from British American Tobacco, Reinet Investments, Old Mutual and Bid Corporation were more than offset by detractors across technology (Tencent), PGM mining (Northam Platinum and Impala Platinum), banking (Piraeus Bank) and gold mining (Barrick Mining) positions. British American Tobacco, Reinet and Old Mutual benefited from a rotation towards more defensive businesses, while Bid Corporation was supported by sector rotation. Tencent weakened alongside a sell-off in Chinese equities, while Northam Platinum and Impala Platinum came under pressure as platinum and palladium prices fell sharply. Piraeus Bank weakened amid profit-taking across Greek banks following strong earlier gains. Barrick Mining also detracted as “higher for longer” interest rate expectations drove a further correction in the gold price.