Globally, stock markets started the year on the backfoot, posting negative returns for the first quarter of 2022. Equity market volatility edged higher too, accompanied by accelerated inflation and the start of the Fed interest rate hike cycle. From a style perspective, the quarter was dominated by the continued strong performance from Value, supported by Low Vol strategies. Momentum continued to trail other core styles, while Profitability and Growth also seemed to lose steam. Locally, the Value factor was the best performer followed by Low-Volatility and Quality.
Locally, Value (7.7%) was the best-performer, followed by Low Vol (5.7%). Quality (4.6%) posted a positive quarter, while Momentum underperformed (-12%). Looking at the local sub-factors, Price Momentum (-8.6%) showed negative returns together with Earnings Revisions (-15.1%), leading to a pronounced negative quarter for Momentum. For Value, all sub-factors performed well with Price to Book (3%), Price to Cash Flow (12%), Dividend Yield (9.4%) and Earnings Yield (6.3%) spreads strong through the quarter, resulting in Value outperforming strongly. Growth (-6.9%) had a negative quarter, while Profitability (9.7%) and Leverage (6%) continued to perform well, with Quality delivering value. Low Beta (9.1%) and Low Vol (2.45%) both had a positive quarter.
The first quarter of 2022 was filled with lots of volatility in all markets across the globe. The sheer aggression of Russia’s invasion into Ukraine caused significant panic in energy markets, which pushed record-high inflation numbers even higher. To combat inflation, central banks, including the US Fed, began hiking interest rates. Locally, the South African Reserve Bank(SARB) also hiked its repo rate for the third time in a row. A market sell-off of risky assets ensued, with the S&P 500 index having its worst start to the year since 2009 and the NASDAQ down the most since 2008.
Despite the negative sentiment and inflationary pressures, the Rand strengthened against the dollar. For the full quarter, the Rand appreciated by 5.2% to the US dollar, closing at R14.64 to the greenback, R19.20 to the pound and at R16.22 to the euro. The SARB raised the repo rate by 0.25% in March as the country registered a tenth consecutive month of higher annualised inflation than the 3 to 6% target range.
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