Disclosure: This article is posted to inform readers and not to provide financial advice.

What is an Economic Review?

Having an awareness of the state of the economies helps prepare you financially. Stay up-to-date on the activities and highlights from the latest quarter by reading this Quarterly Economic Review. We consider key factors such as inflation, interest rates, asset classes, bonds and equities, as well as general growth and employment.

The 3rd quarter covers July, August and September and we reflect on what happened in The Markets. As we near the end of 2024, this retrospective considers both the global broader impact and South African headlines locally.

Global and Local Markets in Summary

In broad strokes we saw inflation ease after a sustained period of fiscal restraint, Emerging Markets outperformed Developed Markets, and global equities did well in Q3. On home ground, South Africa experienced some recovery and growth, leading to a sentiment of cautious optimism.

We saw The Federal Reserve cut interest rates and China announced stimulus. A dovish pivot from several central banks helped improve sentiment among global stock markets. Most major asset classes ended on a positive note in the third quarter, despite some initial volatility.

Global Economic Landscape

In Q3 the global economy saw major central banks reduce rates in major regions, with the United States Federal Reserve and the European Central Bank implementing interest rate cuts. Emerging markets experienced a strong quarter. In Asia, China’s equity markets started to show signs of recovery.

Inflation and Interest rates
In the third quarter of 2024, inflation remained a critical focus for central banks across major economies. Eurozone inflation was confirmed at 2.6% year-on-year in July, marking a slight increase from 2.5% in June. Meanwhile, US inflation showed signs of cooling, with the Federal Reserve reducing rates by 50 basis points, driven by a stronger-than-expected drop in inflation and a rise in unemployment, signaling a shift from tightening policy. (A key catalyst for this shift was the stronger-than-expected decline in non-farm payrolls in the US and a larger-than-expected drop in inflation in August.)

This move to ease interest rates was seen globally, with other central banks following suit to support growth amid slower-than-expected recovery in some regions. The Euro also benefitted from these expectations, reaching a nine-month high against the US dollar. The Bank of Japan held rates steady in September, having raised rates in July.

Growth and GDP
Q3 2024 was a strong one for global markets, across both equities and fixed income. US growth showed resilience, despite a slower-than-expected job growth in July. The S&P 500 (the Standard & Poor’s 500 Index, a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.) had its strongest year-to-date performance this century. UK growth was influenced by a change in government leadership, with the Labour Party winning a parliamentary majority, bringing in Keir Starmer as Prime Minister.
In China, growth prospects were more cautious, with economic activity slowing for most of the quarter, before optimism returned in late September thanks to government intervention and support.

Equities
Overall, global equities had a strong quarter in Q3 2024. Emerging markets in particular saw notable gains, outperforming their developed market counterparts. For example, the MSCI Emerging Markets Index (used to capture large and mid cap representation across 24 Emerging Markets countries) rose by 7.9%, significantly outperforming the MSCI World Index at +6.5% (this index represents large and mid cap across Developed Markets countries). This strong performance was driven by the announcement of new stimulus measures in China.

Global Bonds
In the US, due to the Fed’s decision to cut rates by 50 basis points, we saw a rally in global bond markets, particularly reflected in the Bloomberg Global Aggregate Bond Index (a flagship measure of global investment grade debt from a multitude local currency market), which delivered 7.0% (US$) for the quarter.

Commodities
The commodity market showed mixed results in Q3 2024, with energy prices falling due to lower global demand – and despite heightened geopolitical risks. The S&P GSCI Index, which tracks the performance of commodities, declined overall in the quarter. Other sectors within the commodities market performed better, such as agriculture, industrial metals, livestock, and precious metals.

Emerging Markets
Technology stocks in these regions took a hit early in the quarter, but the announcement of new stimulus measures in China helped boost investor confidence. Despite a volatile start to the quarter, when the Bank of Japan’s interest rate hike caused a temporary sell-off, emerging market stocks outperformed their developed market peers in the subsequent months.

Local Landscape

Following a turbulent start to the year, the local economy showed signs of recovery in the third quarter of 2024. The easing of rates, coupled with the absence of load shedding, set the tone of cautious optimism for the country – reflected in the stronger performance of key sectors and financial markets.

The Two Pot System
One of the key developments in this quarter in South Africa was the introduction of the Two Pot Retirement System which allows South Africans to access a portion of their retirement savings in the form of a “savings pot.” This policy has been seen as a crucial cushion for households grappling with the cost-of-living crisis to help reduce household debt, with a recorded over 1.1 million taxpayers withdrawing over 21 billion rand from their savings to date. As such, we’ve seen a positive shift in consumer sentiment.

Interest Rates and Policy Shifts
In response to improving economic conditions, the South African Reserve Bank (SARB) lowered its repo rate by 25 basis points to 8% in Q3 2024, signaling a shift away from the rate-hiking cycle that had persisted for most of the previous year. Annual consumer inflation cooled for a fourth consecutive month, easing to 3,8% in September from 4,4% in August.
As we move into the latter part of the year, market sentiment has noticeably improved, with both businesses and government signaling a willingness to collaborate on reforms aimed at stabilizing the economy and stimulating growth.

Government of National Unity:
Another major development in Q3 was the formation of South Africa’s Government of National Unity (GNU), which emerged after the 2024 national elections. This coalition government has made progress on key policy reforms, particularly in terms of economic management, and has shown a commitment to market-friendly policies. This shift in governance contributed to improved investor sentiment and capital inflows. In particular, the re-election of President Cyril Ramaphosa for a second term has provided a sense of policy continuity, reassuring investors.

Rand Strength and Stock Market Performance
By September 2024, the rand currency had appreciated to its strongest level against the US dollar in nearly two years – although some of these gains were reversed toward the end of the quarter as the US dollar strengthened following the US elections. Meanwhile, the Johannesburg Stock Exchange (JSE) – the largest stock exchange in Africa – FTSE All Share Index closed at 86 548 on 30 September, gaining 3.3% (ZAR) for the month and returned 9.6% (in Rand) for the quarter.. This surge in stock market performance was driven by optimism surrounding the economic reforms and the stabilisation of key economic indicators, including retail sales and the absence of loadshedding.

Positive Indicators for Growth and Employment
The South African economy demonstrated continued resilience in Q3, with real GDP growth of 0.4% recorded for the second quarter of 2024. This recovery was further reflected in improvements in business confidence, as the Absa Purchasing Managers’ Index (PMI) – an economic activity index based on a survey conducted by the Bureau for Economic Research and sponsored by Absa – rose into expansionary territory at 53.3% in September and remained positive into October. The Rand Merchant Bank/Bureau for Economic Research business confidence index reached its highest level in nearly two years – this index looks at the responses of manufacturers, retailers, wholesalers, new vehicle dealers and main building contractors.

South Africa’s unemployment rate fell to 32.1% in Q3, down from a high of 33.5% in Q2, marking the first decline since Q3 2023. Despite these positive signs, structural reforms, particularly in the labour market and infrastructure, remain essential for South Africa’s long-term prosperity and sustained economic growth.

Looking forward – the investor perspective

Looking forward, we may see further U.S. interest rate cuts, with predictions of a further 50-basis-point cut by the end of 2024 and 50 basis points in 2026. In South Africa, growth is expected to quicken somewhat in the last two quarters of 2024, particularly on the tailwinds of no loadshedding and subdued inflation. As we reflect on the events of 2024, it is clear that the only constant is change.

But what does this mean for investors?
The ability to navigate changes and being comfortable with uncertainty are essential for long-term investing. While it’s good to have a general sense of what’s going on in The Markets, the best investor approach is to play the long-game. Trying to play the markets is not a strategy that tends to pay off.

Consider consulting with our Certified Financial Planners (CFP) at TVC Wealth and Health Managers. A good financial advisor offers valuable guidance and support in managing your finances and achieving your financial goals, as well as aligning your investor portfolio with these goals – read more about the benefits in our past blog here.

Sources:
https://www.schroders.com/en-gb/uk/individual/insights/quarterly-markets-review—q3-2024/
https://ninetyone.com/en/insights/market-review-q3-2024
https://allangray.everlytic.net/public/messages/view-online/MFhFaWodpbk5DNgi/jgsUWbLNnRB4Wm2p/486c7efa6f8057c9
https://links.communications.sanlaminvestments.com/els/v2/dkzLQvwXK~T9/bWJEVkticU0wS2NNdVYrZjlCbTRyNmR2eDRSUVpUcDFTeGFkV0djL2ZaSUhidDExUmd5dExDblIwNUcwQzc4SFJ5ejV3NTJCSHJUL2hRNWF6RWFYN1JRbzlyclBVb3RZYTJ4VURiSi9uU0ljYkNJM3FCa0xadz09S0/
https://www2.deloitte.com/us/en/insights/economy/emea/africa-economic-outlook.html
https://tradingeconomics.com/south-africa/unemployment-rate
https://www.mandg.co.za/insights/articlesreleases/market-observations-q3-2024/
https://www.moneyweb.co.za/financial-advisor-views/quarter-3-global-market-commentary/
https://www.statssa.gov.za/?p=17719
https://businesstech.co.za/news/business/801226/glimmer-of-hope-for-one-of-south-africas-biggest-sectors/
https://tradingeconomics.com/south-africa/unemployment-rate
https://www.weforum.org/stories/2024/09/us-federal-reserve-interest-rates-cut-economy-news-20-september/