In December, the US Federal Reserve reduced interest rates by 25 basis points but paired this decision with a hawkish outlook, signalling fewer rate cuts in 2025 than previously expected. The market’s reaction to the Fed’s revised language reflects growing concerns over inflated valuations and uncertainty regarding the potential impact of the incoming US administration’s economic policies on inflation and interest rates. The rise in US yields and the strengthening of the dollar have placed additional pressure on emerging market currencies, increasing borrowing costs, complicating the servicing of dollar-denominated debt, and reducing their international purchasing power.
Emerging Market equities performed strongly in December, surpassing the Developed Market composite. While South African equities and bonds lagged their respective EM composites, they still delivered solid year-on-year returns. The All Bond Index (ALBI) posted a rare negative return in December, but despite this, the ALBI finished 2024 with a 17.2% gain, marking its best calendar year since 2003. Inflation-linked bonds were the weakest domestic asset class for the year, as slowing inflation led to poor carry and real yields continued to rise.
- The JSE All Share declined by 0.3% for the month.
- Industrials saw positive performance (up 2.7%) for the month, while Resources (down 5.4%) and Industrials (down 1.2%) faced challenges.
- Small-caps (up 3.3%) held up well for the month while Mid-caps (down 1.9%) and Large-caps (down 0.7%) ended the month in the negative.
- Both the S&P SA REIT sector (up 0.5%) and the SA Listed Property sector (up 0.4%) showed some growth over the month.
- SA Nominal Bonds (down 0.3%) recorded a rare negative return in December, marking only the fourth instance of such a decline in the past 24 years. In contrast, Inflation-Linked Bonds saw a modest positive return, rising 0.8%.
- Developed Market Equities underperformed their Emerging Market peers in US Dollar terms, with the MSCI World Index down 2.6% and the MSCI Emerging Market Index down 0.1%.
- Relative to the U.S. Dollar (Rand depreciated 4.5%), the Euro (Rand depreciated 2.4%) and the Pound Sterling (Rand depreciated 2.9%).
- Commodity prices generally declined in December, except for oil. Gold dropped 1.0%, Platinum fell 5.8%, and Brent Crude rose 2.3%.
Source: Factset
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