Markets rallied this month largely due to the expectation that the Fed could moderate the pace of rate increases. Federal Reserve Chair Jerome Powell spoke at the Brookings Institute, signaling a downshift in the pace of tightening of interest rates could happen as early as their next meeting in December. the last four being three-quarter point increases, pushing borrowing costs to their highest levels since 2008. Fed fund futures are now pricing a 77% chance of a 50-basis point rate hike at the December meeting. Markets reacted favorably to expectations that China is loosening its Zero Covid policy following Beijing’s announcement this week that they are speeding up the rate of Covid injections to the elderly. If China’s Zero Covid starts to soften, this should help in reducing global inflation as supply chain issues start to ease.

In the US, core PCE, the Fed’s preferred inflation measure, fell to 5.0% year-over-year in October from 5.2% the month prior. Core services inflation, a gauge Fed Chair Powell described as the most important category for understanding the future evolution of core inflation, slowed relative to the previous print. This further reinforces the downward trend seen in the prior October CPI print.

Macro data continues to point to a resilient US economy. Retail sales were better than expected, with growth of 1.3% compared to the previous month. We continue to observe a wide gap between very negative consumer sentiment and actual consumer behavior as excess savings and a resilient labor market currently appears to be prevailing over growing concerns about a loss of consumer purchasing power. A record 196.7 million Americans went shopping in stores or online over the Black Friday weekend, according to the National Retail Federation (NRF). This was nearly a 9.4% increase from last year’s 179.8 million shoppers.

Coming into 2022 technology was one of the more overvalued sectors. Yet, after falling 25.29% for the year to date, well in excess of the broader market’s decline of 14.39%, we think the pendulum has swung too far and that the sector is attractive for long-term investors. We think the market has gone from being overly optimistic regarding its long-term prospects to now being overly pessimistic. While we think equities remain undervalued, we expect heightened volatility over the foreseeable future. In order to continue their rally back to fair value, we think the markets will be looking for indications that economic growth is accelerating and for further data that inflation has peaked and remains on a downward trajectory.

On the local front the FTSE/JSE All Share Index rose by 12.23% beating the broader index. South Africa’s headline GDP rose by 1.6% on a quarter on quarter seasonally adjusted basis in the third quarter of 2022.The increase in growth over the quarter was largely broad based, with only the electricity and personal services sectors detracting from the headline outcome. The primary sector of the economy rose by a notable 8.2% in Q3.22, adding 0.6% points to the top line reading on the back of gains in agricultural and mining production of 19.2%. Domestically, security of electricity supply remains a key priority. The economy cannot function optimally without access to reliable, affordable energy. South Africa’s annual inflation rate ticked up to 7.6% in October, defying the South African Reserve Bank’s expectations for price pressures to ease. This prompted the bank’s Monetary Policy Committee to hike interest rates by an aggressive 75 basis points last week, taking the benchmark repo rate to 7%. The release of the Phala Phala report on the theft of hard currency at President Ramaphosa’s game farm delivered a more negative finding than was expected. The rand moved from R16.80/USD before the release of the report, to R17.68/USD as markets feared the president would resign. South Africa’s unemployment rate decreased by -1% to 32.9% in the third quarter of 2022. This is the lowest rate since Q1 of 2021.

All performance figures in ZAR unless otherwise stated.

The Iza Global Equity Fund rose by 2.59%, while the Iza Global Balanced Fund gained 2.28% and the Stable Model Portfolio gained 2.51% (all GBP returns) for November.

Looking at the underlying fund managers we find that Smithson and Scottish Mortgage were the fund’s largest contributors for the month gaining 5.7% & 5.5%. The top 5 contributors in the month for Smithson were Fevertree Drinks, Domino’s Pizza Group, Moncler, Fisher & Paykel and Technology One. Fundsmith Equity Fund rose 1.5% for the month. The top 5 contributors in the month for Fundsmith were L’Oréal, Novo Nordisk, LVMH, IDEXX and Nike. The structured products component of the fund gained 2.9% for the month. The Invesco Sterling Bond fund rose 4.61% and the Royal London Sterling Extra Yield fund gained 3.59% for the month.

When analysing Tesla which is one of Scottish Mortgages largest portfolio holdings, we find that despite the current economic environment, Tesla has continued to increase their production capabilities and has managed to sell every car that they manufacture. Tesla’s ability to manage costs in the current environment and continue to grow sales is impressive.
Scottish Mortgage has made a further investment into NorthVolt and is now one of their largest holdings. Northvolt is a private European battery producer and is looking increasingly well-placed to supply the rapidly growing demand for electric vehicles. Looking ahead inflation should start to moderate as the economy slows, the labour market weakens, and supply chain pressures continue to ease.