LAST YEAR was a strong year in global equity markets, with the perennially underperforming JSE also delivering a decent showing. The S&P 500 had a bumper year after a very strong 2023 as the AI revolution continued to give impetus to the technology sector, and embedded the ‘Magnificent Seven’ as the clear winners in the AI race.
The Chinese market showed some improvement despite continued uncertainty around the structural constraints facing that economy, and what has to date been an underwhelming response by authorities to reignite growth.
South Africa company valuations are less attractive this year relative to the start of last year, although we still see upside in certain sections of the SA Inc basket and, notably, the rand hedge counters seem to offer very good value. While there is still very strong thematic thrust behind the US-based technology stocks, these companies now look expensive, and this has prompted us to look for better value elsewhere.
The market has readjusted its interest rate expectations for the US Federal Reserve and by extension, interest rates globally. It is now expected that we will only see a further two cuts of 0.25% each in the US. The shallower than initially anticipated cutting cycle will likely be negative for risk assets.
The dollar is expected to remain strong as US president Donald Trump’s policies gain traction—and this, together with possible disruptions to global trade, is generally regarded to be a further negative for emerging markets. As such, we enter the year with some trepidation around overall market returns, and believe that this could be a good year for ‘stock pickers’.
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