April saw a reversal of the trends which dominated the first quarter of 2024. Emerging markets, including, South Africa, outperformed their developed counterparts as concerns about stagflation dampened sentiment. Weaker-than-expected economic data from the US, coupled with hot inflation prints, fuelled these anxieties. An advance estimate of US GDP showed the economy expanded at an annualised rate of only 1.6% in the first quarter, well below consensus estimate of around 2.5% and the slowest pace of growth in nearly two years. This collapse in US economic growth should have been a positive factor for those expecting rate cuts. However, it was judged negatively because inflation remained elevated, with the deflator accelerating from 1.6% in 2023Q4 to 3.1% in 2024Q1. Investors subsequently tempered their interest rate cut expectations. The sell-off in developed markets assets was, however, minimised by better-than-expected earnings results from US large caps.
Emerging markets were mixed, with China, South Africa, and Eastern Europe delivering resilient performances. Asian stocks outside of China were largely flat, while Latin America stocks and most emerging markets bonds were sold off. China was buoyed by strong first quarter GDP data showing recovery across various sectors of the economy. This positive news from China likely boosted South African equities, which are also likely to benefit from a reduction in load-shedding.
On another front, geopolitical tensions flared briefly in April after suspected Israeli airstrikes targeted Iran’s embassy in Damascus. However, Iran downplaying the incident and US opposition to Israeli retaliation helped alleviate concerns.
We review these dynamics and the performance of major indexes in the pages to follow.