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βeta Solutions Quarterly Style Analysis – Q1 2024

The first quarter of 2024 has been difficult for SA equities, underperforming the MSCI World by a whopping 15% YTD (Capped SWIX vs MSCI World in ZAR terms). The outcome has been driven by two major factors, namely the general risk-off sentiment that negatively impacts emerging markets as well as the unbelievable performance of growth shares in the US (specifically tech). When decomposing SA market performance across styles, an interesting dynamic emerges. Even though the small caps have underperformed large caps on aggregate, positive style performance has been largely driven by medium and small counters within the respective style buckets. The result is most clearly seen in the performance of rand hedge, momentum and growth, all of which have outperformed the JSE over Q1. Importantly, if there is a significant shift in macro factors, i.e. inflation drops, reserve banks start cutting rates and the regional conflicts are settled, we could see a significant value unlock that turn markets risk-on. Specific to the JSE, a further important event is the outcome of the May elections in SA, which if the market deems favourable, could propel the JSE out of its current rut and actually result in SA equities outperforming global markets. Our forecast analysis agrees that the next quarter will bring about much of the same, namely that small and medium rand hedge shares should continue to outperform, however, a shift in market sentiment based on several factors could alter the direction of equity performance, both locally and globally. As always, there are many more “if’s” than “when’s”, therefore the safest bet is always sufficient diversification across styles. Happy reading!

Agrarius - Historical Pricing