Globally, the first quarter was characterised by the outperformance of risk assets. The MSCI World Index returned 5.9% (USD) while the Bloomberg Barclays Capital Global Aggregate Index returned 1.8% (USD). The MSCI Emerging Markets (EM) Index significantly outperformed its developed market counterpart, returning 11.1% (USD), while emerging market bonds returned 3.2% (USD). A large component of this outperformance is attributable to the strengthening of emerging market currencies. This is likely as a result of two major reasons.

Firstly, during the quarter the US Federal Reserve (Fed) decided to increase rates by 25 basis and minutes of the meeting suggested that there could be three more increases for the year. Market participants perceived this to mean that the United States economy was strong. This provided investors with the feeling that there was normalisation in global markets, and minimised the risk of deflation rather than increasing the risk of higher inflation. As a result there was a greater appetite for risk. This has often occurred at the beginning of an interest rate hiking cycle in the United States. Secondly, the search for yield continued, as interest rates in many developed markets remain artificially low.

The big news out of local markets was the recall of Pravin Gordhan and Mcebisi Jonas from the United Kingdom and the subsequent Cabinet reshuffle that resulted in the replacement of both ministers and several other members of parliament. Prior to this, the rand had been one of the best performing currencies year to date and had strengthened just shy of 10% over the quarter. However, after these events the rand weakened significantly along with domestic bond yields. The subsequent depreciation in the rand was ironically good for the South African equity market with the large offshore earnings component benefitting from the weaker currency. As a result the FTSSE/JSE All Share Index returned 3.8% (ZAR). The South African Reserve Bank decided to keep interest rates on hold, giving the bond market reason to rally with the All Bond Index returning 5.9% (ZAR) prior to the reshuffle. However, post the reshuffle, bonds fell and only ended the quarter up 2.5% (ZAR). South African listed property returned 1.4% (ZAR). Over the quarter the rand strengthened by 1.9%.