Investonline 2022 Market Wrap

2022 has been a year of surprises. Investment markets don’t like surprises, as we have seen in abnormally volatile markets.

At the lowest point, the MSCI (world Index) and JSE declined 25% and 15% respectively and had many weekly swings of 5% up and down. This extreme volatility is an unusual consequence of the many surprises and uncertainties facing markets this year.

JSE All Share Index (Rands)

MSCI World Index (US Dollars)

At the start of 2022, who would have predicted:

• Russia would enter a protracted war with Ukraine
• A global energy and food crisis proceeds, with threats of a nuclear war
• China makes fundamental economic and political policy changes
• China’s economic growth shrinks to 3.2% from an expected 5.5%
• Inflation skyrockets to 8.2% in the US and 10% in Europe
• Crypto-currencies collapse (Bitcoin down to $15K from $65K in Nov 2021)
• Tech shares slump (META -66%, Netflix -50%, Amazon -47%)
• Ramaphosa is facing serious fraud charges
• Loadshedding becomes permanent
• Covid “magically disappears”

Barring the disruptions of Russia and China, the main driver of global investment markets in 2022 has been the sharp rise of inflation and the anticipation of Central Banks’ actions. Going into 2022, global markets were expecting a moderate increase in inflation that would be transient. But with the onset of the global energy and food crises, inflation sky-rocketed leading to sharply higher interest rates and a 25% decline in the MSCI World Index. The question is, how does this now play out in 2023?

The investment market playbook for 2023

Global inflation appears to have peaked, but it is unknown how long it will take to decrease back to target ranges of 2% to 3%.

US interest rates are currently 3.75% and are expected to peak at 5%, but their subsequent easing will depend on the pace of inflation declining.

Despite interest rate increases, the US economy is still growing at a reasonable 2.9%. However, it generally takes 8 to 12 months for higher interest rates to bite, and therefore, its highly likely a US and global recession will follow in 2023. Current market predictions are that a recession will be short lived.

The major unknown and often underestimated result is the recessionary effects on company earnings. Lower than expected company earnings is the biggest fundamental risk facing markets in 2023.

The question is, of the probable earnings decline, how much is already priced into market valuations? Bearing in mind that investment markets are generally 18 months forward looking.

This sets 2023 up for a stop – start year with more volatility, but most probably less than 2022.

SA’s future remains a major concern

Other than a long list of failings, Ramaphosa’s Phala Phala saga is likely to have long lasting negative effects on the country given its fragile politics. The bottom line is SA needs the private sector, both local and international, to invest in the country to produce growth. This will not happen within an unstable political environment and with a dysfunctional government.

However, despite all the negatives, there are some positives:

• The rebuilding of some government institutions is taking place, such as SARS, NPA and Eskom
• Many arrests for corruption have taken place with asset forfeitures in the R Billions
• State capture is being throttled
• If Ramaphosa stays, he has a far more supportive new ANC top 6 to work with
• Policy has changed to allow private electricity supply
• There’s a credible plan to replace Eskom’s ailing generators by 2030
• Eskom’s debt has been reduced and a more credible board has been installed
• The R200bn+ resources windfall taxes over the last two years have averted a debt crisis for now, lowering our debt to GDP to 71% from a projected 90% after Covid
• 3Q 2022 GDP growth of 1.6% surprised on the upside, due to strong agriculture and service growth
• Relative to other emerging market countries, SA appears relatively stable
• The Bokke are looking good to retain the World Cup in 2023

Investing all comes down to valuations

Locally and Internationally equity markets are at near historical valuation lows, which provides an attractive entry point for long-term investors.

JSE All Share Index P/E ratio

MSCI World Index P/E ratio

The Prosperity Fund continues with good, stable returns

The Prosperity Worldwide Flexible Fund of Funds is a conservative fund with an emphasis on capital preservation. Since inception (Sep 2014) the fund has returned an average 9.0% p.a. (net of fees). In 2022, the fund has returned 9.4% (annualised) year to date.

In the Morningstar Ratings, year to date, the fund is ranked 3^rd out of 91 funds in its category, Multi-Asset Worldwide Flexible Funds.

The fund is well suited to investors who want offshore exposure and a steady investment return.

Investonline had another good year

Thanks to our loyal clients and our hardworking team Investonline has had another good year of growth. Client retention remained high, and we received many positive reviews for our superb services. We employed two new Client Portfolio Managers, and we are currently seeking two further appointments in 2023.

Learning (Wisdom) remains a cornerstone of our success, as two Client Portfolio Managers passed their CFP (Certified Financial Planner) board exams, and a further advisor completed their honours degree in financial planning.

We look forward to 2023, as our improved systems add further value to our clients and our partnership with clients continues to strengthen.

We wish you a blessed festive season and a prosperous new year.

50-week push-up challenge

Throughout the year we did a fun challenge in the office to prove that dedicated, hard work can produce results. These values underpin our culture at Investonline and drive our main objective of ensuring that our clients achieve their financial and lifestyle goals.

See our team’s 50-week push-up video.