Global Market and Economic Summary
Global markets extended their gains in October, as risk assets posted broad-based gains supported by resilient economic growth, an increasingly accommodative monetary policy backdrop and rising corporate earnings expectations. In the U.S., the “AI investment” narrative came under pressure as markets began reassessing the balance between aggressive capex spending and near-term earnings growth. Despite these headwinds, overall earnings for the sector have continued to trend higher. The technology sector once again led global equity performance, as evidenced by the performance differential between the NASDAQ (+4.8%) and the broader S&P 500 (+2.3%) over the month. Emerging Markets (EM) outperformed their Developed Market (DM) counterparts over the month, with Korea (+18.1%) and Japan (+11.8%) being the standout performers of the respective regions. Global bond markets also delivered positive returns in October, as declining yields and a shift in major central banks’ actions provided broad- based support. However, toward the month-end, U.S. Treasury yields spiked higher following Federal Reserve Chair Jerome Powell’s comments that there was “no guarantee of further cuts.” The 10-year Treasury yield rose sharply to 4.10%, its highest level since early October, leading to a late-month bond sell-off that erased much of the fixed-income gains over the month.
In other economic news, late-month trade talks between the U.S. and China lifted global sentiment, with both sides agreeing on a one-year trade deal that would pause steeper U.S. tariffs and limit China’s export controls on rare earth minerals – a critical component in the AI supply chain. In monetary policy news, the U.S. Federal Reserve continued its rate-cutting cycle in October, lowering the Federal Funds rate by – 0.25% to a target range of 3.75%–4.00%. However, Chair Jerome Powell cautioned that an additional cut at the December meeting is “not a foregone conclusion,” signalling a more data-dependent approach as policymakers weigh the balance between easing inflation pressures and sustaining economic growth. Elsewhere, the European Central Bank (ECB) opted to keep its main policy rate unchanged at 2.00%, reflecting continued resilience in the euro area’s economic activity, a firm labour market and inflation that remains above its 2% target. Meanwhile, the Bank of Japan (BoJ) kept its short-term policy rate unchanged at 0.5% – the highest level since 2008 – extending its pause since the last hike in January.
South African Market Update
South African equities (+1.6%) posted positive performance over the month, extending their strong rally. However, the local equity market underperformed both its DM and EM counterparts. Within the local equity market, there has been a divergence from the recent trend, where the All Share Index (ALSI) saw broad-based gains that were not dominated by the Resources sector. The Resources sector (-4.8%) detracted from overall returns, as weakness in precious metals weighed heavily on performance. Gold and platinum miners faced sharp declines amid softer commodity prices. Notably, Impala Platinum (- 15.5%), Harmony Gold (-7.0%), Gold Fields (-7.0%) and Thungela Resources (-12.5%) all posted steep losses over the month. In contrast, Industrials (+1.8%) and Financials (+8.5%) posted strong performance over the month, with “SA Inc” stocks such as Discovery (+11.6%), Capitec Bank (+11.0%), Firstrand (+9.2%), Spar (+10.8%) and Shoprite (+7.9%) contributing strongly to performance. The Property sector (+7.8%) posted its strongest monthly performance this year, buoyed by declining bond yields and solid operational updates, with stocks such as Growthpoint (+15.4%) and Redefine Properties (+8.7%) posting strong returns over the month.
South African bonds (+2.6%) delivered strong returns in October, supported by a combination of favourable global conditions and improving domestic fundamentals. Locally, subdued inflation expectations, a modestly improved fiscal outlook and a more credible monetary policy contributed to a broad-based decline in yields across the curve, lifting bond prices over the month. Confidence was further supported by a more stable rand and growing expectations that the South African Reserve Bank (SARB) may eventually lower its inflation target, reinforcing the medium-term disinflation narrative. The country’s recent removal from the Financial Action Task Force (FATF) “grey list” also boosted investor sentiment and could help in potentially attracting incremental foreign inflows. At the same time, recent interest rate cuts by the U.S. Federal Reserve have boosted the appeal of the country’s high-yielding bonds.