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Your investment in Q2 of 2022

Author
The Connector
Category
Date
12 September 2022
5 min read

Investment markets

Globally, investment markets finished the first half of 2022 as the weakest first half in decades. South African shares also had a weak second quarter, but stronger first quarter returns resulted in the year-to-date investment performance being better than its global peers. All major indices on the JSE reduced in value in Q2 of 2022. Only financial shares were positive for the six-month period to 30 June 2022.

Economy

After strengthening early in Q2, the rand weakened compared to the US dollar. The US dollar strengthened by around 8% during Q2, mostly because of tighter US monetary policy. Rand weakness was because of negative sentiment due to ongoing load shedding and other risks. Despite the negative sentiment, South Africa’s current account has a surplus which would have helped to strengthen the Rand.

In the IMF’s World Economic Outlook update, they forecast that global growth is likely to reduce due to the ongoing war in Ukraine, global high inflation, supply chain bottlenecks, and energy insecurity. The IMF revised South Africa’s forecast growth higher, because of higher commodity prices, which in turn increases GDP.

Inflation

Globally, inflation has increased. For example, it has increased to 9.1% in the US and 8.6% in the Eurozone. The underlying reasons for higher inflation remain present even though commodity prices have begun to come down. In some economies, there is a risk of “stagflation”. This describes the situation where inflation stays higher for longer while growth stays lower for longer.

South African inflation was at 7.4% in June 2022, the highest it’s been since May 2009. This is the second consecutive month that inflation was higher than the SARB’s targeted 3-6% range. Transport inflation is a key reason for higher inflation due to higher fuel prices, which has also resulted in high food inflation.

The South African Reserve Bank increased interest rates by 0.25% in March, 0.5% in May and 0.75% in July 2022. Around the globe, central banks have also been increasing interest rates as they are concerned
that inflation may increase even more if they don’t increase rates.

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