2024 Investment Outlook – Stonehage Fleming
1 Feb, 2024

Bryn Hatty, Stonehage Fleming’s Chief Investment Officer in South Africa



Upcoming election weighing on investors


Even though several negative factors impacted the investment environment in 2023, South African markets followed global peers higher in the final quarter with the FTSE/JSE All Share Index ending the year at 9.3%, which was marginally behind bonds at 9.7% but ahead of cash, at 7.8%. The standout performance for 2023 came from global equities, with the All Country World Index (ACWI) returning 31.3% (in rand).


While some of these factors, such as loadshedding and logistical constraints, will continue to affect South African markets in 2024, there are also positive dynamics that will be in investors’ favour. Headline inflation, for example, which registered 5.5% in November, will continue to be within the Reserve Bank’s target of 3-6% and continue trending lower – as a result domestic interest rates will likely be lower by the end of the year.


“We believe that SARB will maintain the repo rate at its current restrictive level of 8.25% until after the elections have been held, probably sometime in May, and the Fed has started cutting US interest rates. The elections are also weighing on foreign investors (and potentially some domestic) who are sitting on the side-lines waiting to gauge the outcome,” said Bryn Hatty, Stonehage Fleming’s Chief Investment Officer in South Africa.


As both electricity and logistics are extremely important for the economy, their repair falls within the remit of Operation Vulindlela, a special joint initiative of the Presidency and National Treasury aimed at accelerating the implementation of structural reforms and supporting economic recovery. Eskom is a bit further along than Transnet, and the next important milestone for the latter will be the finalisation of The Economic Regulation and Transport Bill, which is currently scheduled for April of this year. This Bill would open the door for greater levels of private sector participation in the logistics network over time.


“There is much being done, but it will take time and the journey will not be straight forward,” said Hatty.


Fiscal Considerations


The return of the twin deficits last year– so called for concurrent negative balances on the country’s fiscal and current accounts – adds risk premia to the rand and sovereign bonds. Lower prices of key commodity exports coupled with the logistical constraints noted above has caused the balance on the Current Account to revert to negative.


The government’s budget balance is predominantly impacted by a reduction in mining tax revenues collected, as well as increased outlays on public sector wages, SOE’s, and social grants. While National Treasury has been standing its ground on the fiscal consolidation front, markets are currently pricing in a potential risk that electioneering rhetoric impedes these efforts.


“The annual budget speech, to be held at the end of February, will be closely observed for a continuation of prudence, but also for any further allocations to SOE’s such as Transnet,” Hatty said.




From a broad industry perspective, the largest outperformance last year came from SA Financials with a total return of +20.0%, followed by SA Industrials (+16.6%). SA Resources, however, recorded a loss of 11.8%.


Looking ahead, Hatty said the firm believes the prognosis for SA equities in aggregate rests on undemanding valuations (especially vs. emerging market and world equites) supported by elevated dividend yields on many stocks.


“Once the election passes and the US Fed starts cutting interest rates, there could be a rerating, which would be beneficial to the equity market. Any strength in the global economy, and in particular China with the consequent impact on commodity prices, would also be positive for SA assets.”


Fixed Income


SA long bond yields followed those in in the US lower over the final quarter of last year, translating into strong positive returns. The South African All Bond index rose 8.1% (in rand), while its global compatriot, the Bloomberg Global Aggregate index, rallied 8.5% (in US dollars).


“The key driver of this was markets starting to expect looser monetary policy from key central banks – notably the Fed. Post this rally, the yield on bonds in SA moved closer to fair value. They do, however, remain high on a real basis.”


Overall, the South African economy and financial markets face many macro and political risks on the domestic front, as well as from abroad in 2024.


“In the US, our offshore colleagues believe entrenched disinflation will lift real income growth and reduce the likelihood of a deep US recession, which was a major concern for markets in 2023.  With global inflation cooling off, central banks are set to assume a more accommodative stance than last year. Domestically, the SARB is likely to be a price taker – not cutting as aggressively as the Fed while fiscal and political risks apply pressure to the currency,” Hatty concluded.








@Bryn Hatty
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