The equities market continued their decline for the third consecutive month due to uncertainty around interest rates and geopolitical risks in the Middle East. The fund was down 1.75%, outperforming MSCI World which was down 2.9%. Growth outperformed value yet again- MSCI Value was down 3.4% and MSCI Growth down 2.4%. Emerging markets lagged developed markets. Locally, the Top40 was in the red as well overall; but the top performers for the month were the gold mining companies- Harmony Gold, Gold Fields and Anglogold Ashanti- as gold spot price was up 7.3% and going over the $2000 per ounce for brief a period. The rise was probably related to safe haven buying amid potential volatility in the market.

The U.S. economy proved to be resilient after reporting a 4.9% annualised Q3 GDP growth which was led by government and consumer spending. President Joe Biden’s ‘Investing in America Agenda’ which includes the CHIPS and Science Act, Inflation Reduction Act, and the Bipartisan Infrastructure Law- all meant to increase private capital spending in U.S. played an important role in increasing GDP. Real non-residential fixed investment (basically business capex) exceeded expectation, growing at 3.7% compared to 0.2% which was expected. Furthermore, the U.S. is a consumption country and with the unemployment rate remaining relatively lower than expected due to the strong job market. Real consumption spending grew by 2.4% instead of the estimated of the low 0.5% as disposable income grew by 3.8% due to the strong labour market.

In terms of the fixed income market, the U.S. yield curve steepened. The increase in yields was impacted by the market grappling with the prospect of a Federal Reserve committed to maintaining higher interest rates over an extended duration. The 2-year Treasury yields slightly increased from 5.05% to 5.09%; the 10-year increased from 4.58% to 4.93%; the 20-year increased from 4.9% to 5.29%; and the 30-year from 4.7% to 5.1%.

In Europe, the ECB (European Central Bank) left interest rates unchanged after 10 consecutive hikes. It mentioned that it would remain data dependent in terms of decision-making and continued to emphasize on ‘higher for longer’ rates. Eurozone inflation in October fell to 2.9%, its lowest level in two years, and core inflation fell to 4.2% year-on-year. With inflation falling and Q3 GDP contracting by 0.1%, the market believes that the ECB won’t raise rates higher, and this resulted in outperformance of bonds in Europe.

In summary, the equities market faced a third consecutive month of decline, driven by uncertainties surrounding interest rates and geopolitical risks in the Middle East. Despite the challenging environment, the fund managed to outperform the MSCI World index. We’ve started to increase equity exposure with an anticipation of a potential rally in the market as the year ends.

All returns are in USD