The SA economy is also somewhat better insulated against a global slowdown compared to previous cycles. Inflation has already peaked in South Africa. From a recent cycle high of 7.8% in July 2023, headline CPI inflation has since drifted lower towards 7.4% in November. Lower international oil prices, combined with a more stable rand/US dollar exchange rate (which should result in even more petrol price declines), lower food inflation and the advantage of significant base effects, will facilitate a relatively fast slowing of inflation over the course of 2023.

While interest rates are higher than at the start of 2022, no significant further increases, combined with lower inflation, will not only stabilise but could even lift confidence. Improved confidence, combined with a strong uplift in real income, will be supportive of consumer spending. Business confidence will likely also get a fillip from an improved political situation. President Ramaphosa’s very decisive win at the ANC’s December elective conference could very well mean even faster and more decisive policy reform. Despite a relatively weak win in the 2017 conference, policy reform has thus far been stronger than expected when taking into account the strong move towards more private sector participation in the economy, including the most significant policy reform ever in SA: the complete opening up of energy generation.

Apart from net exports support, consumer spending and business fixed investment, the economy should also benefit from a relatively good agricultural season. Rainfall has been quite beneficial to the prospects of another large maize crop - our single biggest contribution to overall agricultural production.

Global growth is slowing, and there are clear risks to the downside. Recession seems likely in many economies in the developed world, but emerging economies should recover somewhat from last year. Recession or not, 2023’s growth will likely show a further slowing from 2022 (note that 2021 was strong as a result of the rebound from the Covid-impacted 2020 growth slump) for the US and euro area. One saving grace for the global economy (and particularly for emerging economies including South Africa) will be the expected rebound in Chinese growth. A global recession is unlikely - and even recessions in individual countries are unlikely to be very deep or long-lasting.

For the US economy, fading supply side shocks, the absence of the usual late-cycle excesses (in consumer and business spending) and vulnerabilities, and likely fast-falling inflation should all combine to limit recession risk - especially during the first half of 2023. The US might even be able to get through 2023 without a recession. The private sector has been relatively resilient with consumer spending surprisingly stable, and purchasing power should get a strong boost from a sharp fall in inflation while the labour market remains supportive - certainly weakening, but not imploding.

Recent US employment data presents a potential Goldilocks scenario (not too hot, not too cold) as employment seems supportive of growth, while wage growth has been slowing enough for the US Federal Reserve’s inflation concerns to ease markedly, but not enough to cut too deeply into potential consumer purchasing power.

The broad South African equity market exposure in the fund is primarily through an allocation to the FTSE/ JSE Capped Shareholder Weighted Index (Capped SWIX), which is intended to be a fairer reflection of the investment universe available to a South African investor. The Capped SWIX has a strategic weighting of 35% in the fund and returned 12.22% for the quarter ending December 2022.

All sectors delivered positive returns with the best performing sectors for the quarter being technology and consumer discretionary returning 24.29% and 23.09% respectively. The worst performing sectors were telecommunications and healthcare returning 3.22% and 2.44% respectively.

In addition to the broad local equity market exposure, the fund also has exposure to SA listed property with a strategic weight of 7.5%. The JSE SA Listed Property Index returned 19.32% for the quarter ending December 2022.

The international equity component is invested in the MSCI All Country World ESG Leaders Index, which has a strategic weighting of 15%. The index offers exposure to both developed and emerging markets globally. The MSCI All Country World ESG Leaders Index returned 9.91% in USD terms for the quarter.

The rand appreciated by 5.80% against the US dollar over the quarter. To diversify the fund away from equity, it invests in nominal bonds through exposure to the JSE All Bond Index (ALBI), which has a strategic weighting of 15%. The JSE ALBI increased by 5.65% for the quarter.

In addition to the nominal bond exposure, an allocation is also made to inflation-linked government bonds through exposure to the JSE IGOV Index, which has a strategic weight of 10%. The JSE IGOV increased by 1.97% for the quarter.