2022 was a year marred with volatility as inflation in most of the world’s leading economies was in double digits at some stage, resulting in substantial interest rate hikes globally. This mostly caused by energy shortages and supply chain disruptions but was not entirely surprising as leading economies have been printing money through different forms of Quantitative easing since the financial crisis of 2008. Some inflation is useful to help government grow out of their enormous debt bills, and interest rates have been unnaturally low for more than a decade so needed to normalise at some stage, however, it did wreak havoc in most asset markets, and equities was not spared as global share markets retreated 20% in USD.

Even with load shedding persisting locally and the yield on the 10 year SA govt bond rising 80bps for the year, our local share market was spared and was flat for the year. This is testament to the great relative value it offered compares to global markets, and American listed shares more specifically, offering some margin of safety. Even after this gap narrowed significantly as a result, our share market still offers phenomenal value but returns over time will almost certainly be accompanied by continued elevated volatility. Interest rates do not necessarily need to come down again as a sign that everything will be fine as they are currently much closer to the long-term norm, and in this space also South African bonds look attractive compare to global, especially with the Rand’s current undervaluation compared to the dollar when valuing it on parity matrices. Details of what happened each qurter follows:

The JSE starts the year at 73 709 and the yield on the 10-year bond at 9.35%. CPI for January was 5.7%. in Q1 South Africa announced lower income tax rates as the fiscal deficit came in much lower than budgeted due mainly to higher (mining) company taxes stemming from higher commodity prices. Russia started a war against Ukraine, causing energy prices (natural gas and oil) to surge. Central banks globally started hiking rates to combat inflation. The US announces a ban on Russian oil, gas, and coal as fears of a world economic recession increase.

In Q2, South Africa is rocked by load-shedding and massive floods in KwaZulu-Natal, contributing to a weaker Rand and share prices and rising bond yields. Local CPI increased to 7.4% in June. Ramaphosa increases the private electricity generation cap from 1 MW to 100MW. The EU agrees to ban most imports of Russian oil. China’s economy continues to struggle due to trade conflicts, the effects of the Russian-Ukraine war, the negative impact of higher international CPI and interest rates and strict COVID-19 policies.

Energy prices in Europe surges with natural gas quadrupling. In the third quarter, stage 5 load-shedding remain Boris Johnson resigns as UK prime minister following a cabinet scandal. Mario Draghi resigns as Italy’s prime minister. Jerome Powell, in his Jackson Hole speech, reaffirmed the Fed’s commitment to bring CPI under control. Globally central banks continue to aggressively hike rates, whilst OPEC cut oil production. Boris Johnson is succeeded by Liz Truss as UK prime minister. The UK caps energy prices for households and cuts taxes but fails to convince markets on the financing of these measures.

In the final quarter of the year, the minister of finance announced a smaller fiscal deficit for 2022/23 than estimated in February, whilst Some 36 000 freight rail and port workers went on a two-week labour strike for higher wages. Liz Truss resigns as prime minister of the UK (following a disastrous government budget which rocked financial markets) and is succeeded by Rishi Sunak. The IMF estimates world CPI to be 8.8% in 2022 from 4.7% in 2021, and for world economic growth to slow to 3.2% from 6%. Italy’s nationalist right triumphs at a general election and Giorgia Meloni becomes the country’s first female prime minister. Former leftist Brazilian president, Lula de Silva, defeats incumbent, Jair Bolsonaro.

The petrol price increased by R8.47/l or 57.7% in 2022. Stage 6 load-shedding continues as Eskom ran out of diesel and power stations fail. Andre de Ruyter resigns as Eskom CEO. The ANC-led majority in parliament rejected an impeachment process against pres. Ramaphosa by voting not to accept the Phala Phala investigative report. Ramaphosa is re-elected as president by a larger margin and at least 5 of the top 7 ANC positions are Ramaphosa supporters. The JSE ALSI ends the year at 73 048 (0.9% lower year-on-year) and the yield on the 10-year bond ended 80 basis points higher at 10.2%