The South African stock market was up during the quarter despite the global events which have transpired. The JSE All Share Total Return Index gained 3.84% led by financials and resources stocks. Surprisingly, the local market was one of the better performing markets during the quarter.

Chart: Performance of the FTSE/JSE All Share Index over the past ten years (2012/04/01 – 2022/03/31)


Source: Trading economics

Despite the volatility over the quarter, the local market benefited from a spike in commodity prices as well as a demand for local bonds. The budget speech had also highlighted South Africa’s better than expected fiscal improvements. Contrary to the narrative, the majority of the additional tax revenue in 2021 was attributable to higher than forecasted tax collections with the commodity boom only accounting for around 1/3rd of the additional tax revenue from what was originally forecast.

The local currency also strengthened significantly, recording an 8.9% gain against the dollar and 11.9% against the pound. The Rand was the second best performing emerging market currency over the quarter.

In light of the negative global events that unfolded over the quarter, the South Africa market seemingly surprised many people.

Source: Profile Data 31/03/2022
* Annualised Performance

“Great news for retirement savers as offshore limits increased to 45%”

As South Africans, one tends to fear the long-term deterioration in the local economy, politics, socioeconomic equality as well key infrastructure and service delivery. From an investment perspective, on balance, South African investors have been accustomed to pleasing returns from local assets over the past 25 years. Managers such as Allan Gray and Coronation hold outstanding track records of market beating returns in their respective balanced funds. Since 1999 the Allan Gray Balanced Fund has returned 15.4% per year, whilst the Coronation Balanced Plus Fund has returned 14.2% per year since 1996.

The caveat to the long-term performance of local balanced funds has been their performance during the period 2015 – 2019 where they essentially traded sideways for 5 years. During the period, offshore assets outperformed local assets which led to disillusionment towards regulation 28 of the pension fund act which restricts the amount of offshore exposure within a retirement portfolio. This, coupled with evidence of deteriorating fundamentals in South Africa, was a concern for investors and investment professionals alike.

The March 2022 budget speech saw the announcement which has since been positively received by all the major asset managers, amending regulation 28 of the pension fund act to allow investors and asset managers to invest up to a maximum of 45% of their retirement savings directly offshore.

The table below shows the changes to the offshore limits over the past several years. There has been a clear trend towards the need for increased flexibility to hold direct offshore assets.


If one were to compare the performance of a typical local balanced fund to that of a worldwide flexible fund, there is a stark difference in the long-term performance of the two portfolios. The chart below shows the performance of Foord’s local balanced fund (regulation 28 fund) compared to their worldwide flexible fund as shown by the blue line. The bottom line is that the same manager is able to achieve a performance of 2% more per year, in their worldwide flexible fund, with a similar degree of “risk”.

Various studies have been conducted which try to establish the “optimal” offshore allocation that a South African investor should have. Although the answer may be different for each investor and should be seen within the context of their overall financial circumstance, the revised maximum offshore limit of 45% does indeed go a long with to provide managers with the flexibility to find the optimal balance for investors over time.

In response to the new limits, some asset managers have decided to increase their offshore exposure in their local balanced funds whilst others have stated that they will look to increase their offshore exposure over time subject to where they find the most value for investors on a risk adjusted basis.


How has the Russia/Ukraine war impacted South Africa?

Russia’s invasion of Ukraine has set in motion several policy responses by world powers. These include sanctions which are designed to cripple the Russian economy. South Africa has been a beneficiary of these sanctions simply by default. For example, the London Platinum and Palladium market will no longer accept material from Russian refiners – another positive for the SA commodity producers. Accordingly, the war in Ukraine has led to higher commodity prices as well as a higher demand in select commodities. This has benefited South Africa’s resource sector which traded 15.16% higher over the quarter.

Sanctions have also caused investors to pull their money out of Russian assets. South Africa has by default seen an inflow of money into its bond market after Russia was effectively excluded from several global and emerging market bond indices. A recent ratings upgrade from Moody’s saw South Africa’s credit outlook moving from “negative” to “stable”. This is likely to further support inflows into South African assets such as local bonds.

These factors have seen the local currency strengthening by 8.9% against the US dollar over the quarter. Investors who have offshore exposure in their portfolio are likely to see a decline in the performance of their investment due to the volatility in the currency. Given the global economic environment, managers are cognisant of the fact that the demand for resources and local bonds, coupled with a trade surplus and an “improving” fiscal environment, could see the rand continuing to strengthen from its current level. The rand nevertheless remains extremely vulnerable to a shock event.

As the third largest producer of oil, the sanctions on Russia have caused the price of oil to skyrocket. South Africa has not been spared, as we have seen rapid increases in fuel prices with further increases set to come. This has and will continue to have a serious impact on consumers as inflation filters through the system. One of the benefits of having a strong rand is that there is some reprieve when suppliers buy oil in US dollars. It is estimated that only 45% of what a South African consumer pays for fuel, is comprised of the basic fuel price.

The length and depth of the economic effects that will be felt by not only South Africans but the world, has yet to be quantified as the situation in Europe remains fluid.

Asset managers have been hard at work assessing portfolios and where necessary, implementing changes to either take advantage of cheaper asset prices or to reduce risk within the portfolios.


Perhaps somewhat unexpectedly, the outlook for local assets remains positive. Asset prices remain cheap whilst our resource sector continues to benefit from a growing global economy. Last quarter the outlook cautioned investors that “local assets as well as the rand, are likely to experience high levels of volatility throughout 2022” which was certainly felt during the first quarter.

Fund managers have had to actively manage their strategies over this seemingly absurd period in global markets. Although there is no consensus as yet, there is a growing fear that the global economy, global inflation and further geopolitical tensions could cause the local market to undergo periods of significant market volatility.


Global equity markets had a tumultuous period, closing out the quarter -5.04% lower in US dollars.

The graph below represents the World Equity Index over 5 years in dollar terms.

*Performance as of 31/03/2022


Developed markets fell by -5.13% whilst emerging markets continued their decline by -6.92% over the quarter. Some regions were hard hit such as European equities which fell -11.09% whilst Chinese equities fell by -14.19%.

The war in Ukraine caused commodity prices to rise along with inflation fears around the world. The EU’s reliance on Russian oil and gas has been put to the test after commitments were made to seek alternative sources of energy. All in all, Europe seems to be on the back foot during a period where they needed to stabilise their post-covid economies.

In China, a conundrum of factors continued to worry global investors. In 2021 Chinees equities responded poorly to shifts in policy which looked to assert the communist state’s power over the private sector. During the quarter, Chinese authorities made repeated vows to stabilize the economy and if needed, to step in to provide further stimulus.

The events of the quarter have accelerated fears over the possibility of this being a period of stagflation, particularly in the US.

Not a great start to the year!

Last quarter we highlighted the 2022 consensus views which noted five key themes. These themes were, inflation, interest rates, lower but positive global growth, heightened risk of volatility, and what to do about China. Needless to say, all of these factors played out during the first quarter. Investors are concerned by what they are hearing in the news, seeing on their televisions and not to mention, the fuel price.

The complexity of the above factors are indeed a cause for concern. As the events continue to unfold, the fund managers continue to adapt their weightings to equities (volatile growth assets) with some managers even hedging out some risk in the portfolios.

The narrative has seemingly transitioned from one of cautious optimism to one of defending capital. The sell off in global equities during the first quarter seemingly bottomed out around the 15th of March and has since started to recover as the market begins to factor in the numerous forces in both the market and the global economy.

The table below shows the year to date returns from several well known and highly rated global balanced funds. Despite a very volatile and uncertain quarter where global equities fell by -5.13% and global bonds fell by a whopping -6.24%, many of the well known and highly rated global balanced funds had held up fairly well.

Source: Profile Data

As noted in one of the five key themes, volatility is likely to remain high over the over the course of the year.

It’s important to acknowledge that the fund managers are in the best position to navigate the market on behalf of investors. A strategy of jumping in and out of the market or investment “funds” based on what one sees and hears in the news is not a sound investment strategy.

An important consideration at this point is to ensure that one’s portfolio is aligned with one’s risk profile and financial objectives.


The outlook for global markets is uncertain and yet there are reasons to purchase select companies at these depressed levels. Some investment managers are buying select stocks which they believe will endure the current economic climate and potentially thrive such as select financials, commodity companies and indeed select healthcare stocks. Higher volatility is to be expected during the remainder of the year.

In times of worry or concern regarding your investments, we urge you to make contact with your financial adviser.