US economic activity is growing moderately from healthy levels despite headwinds from sharply rising interest rates, waning fiscal stimulus, slowing residential investment, notably higher consumer inflation and concerning geopolitical tensions. The US labour market has been resilient thus far and household balance sheets remain robust, although consumer confidence has declined. The US dollar strengthened considerably last year as the Federal Reserve Bank lead globally with interest rate hikes to tackle high inflation.
Europe’s economy is weakening, with higher inflation (due to high energy prices exacerbated by a weaker currency) and very low consumer confidence. Although the war in Ukraine continues to impact (primarily via the sanctions on Russia raising energy and agricultural product prices), success in reducing gas consumption and securing alternative energy sources, coupled with a very mild winter period, has helped to prevent a deeper contraction. German manufacturing and exports, particularly automotive production, should benefit from easing global supply chain frictions and recovering production in the constrained semi-conductor sector.
Japanese economic activity has seen solid recent recovery due to the complete lifting of COVID restrictions (improving business sentiment and private consumption) and continued strong export activity – all against a backdrop of an extremely loose monetary policy and very weak yen. As with Germany, Japanese manufacturing and exports should benefit from easing global supply chain frictions and reduced semi-conductor lead times.
Chinese economic activity, particularly consumption, is finally recovering from the self-enforced slowdown resulting from prolonged urban pandemic lockdowns, which are rapidly being unwound. Property market activity, while still very weak, is slowly benefitting from some policy easing. Chinese government policy has shifted more towards promoting growth after the economy, in 2022, posted the lowest annual growth rate since the 1970s.
The outlook for other developing economies differs widely, with varying exposures to high commodity prices (energy, metals and agricultural prices), persistently weak tourism activity and the closure of Chinese borders. Some poorer economies in particular are facing extremely high food and energy inflation, which is leading to increased socio-economic and fiscal instability.
After a very moderate rebound from the COVID lows last year, the outlook for the South African economy has weakened due to sharply worsening electricity and logistics constraints – despite continued strength in the primary sectors (mining and agriculture). With a large, unskilled population, South Africa continues to grapple with excessively high unemployment levels. This exacerbates social instability, particularly in the face of rising food and transport prices. Growth is also severely constrained by an inadequate and acutely unstable electricity supply, underperformance of transport infrastructure, weakened and revenue-hungry municipalities and chronically low business confidence. For these reasons, coupled with the very large government debt burden, we remain pessimistic regarding the structural growth rate for the local economy, despite signs of some incremental government moves towards economic reforms. Additionally, there is a risk that lower future commodity prices (particularly platinum group metals, iron ore and coal) will result in even weaker prospects.
The Islamic Equity Fund was up 5.0% in the final quarter, underperforming the peer group average (up 10.5%) and down 3.8% over the last year (versus 3.1% for competitors). It is up 11.8% over the last three years, ahead of the competitor group average (up 10.2% pa). Since its inception in 2009, the fund has returned 11.1% pa. Key positive contributors within local equities in the fourth quarter included our global equities, Northam Platinum, Anglo Platinum, African Rainbow Minerals and MTN.
The Islamic Balanced Fund was up 4.5% in the final quarter of 2022, underperforming the competitor group average (up 6.9%), and down 0.9% over the last year (competitors down 0.5%). It is up 10.9% over the last three years, materially ahead of the peer group average (up 8.0% pa). Since its inception in 2011, the fund has returned 7.9% pa. A positive performance from our local and global equities and sukuks were the key contributors in the quarter.
By: Camissa Asset Management investment team
Camissa Asset Management (Pty) Ltd is a licensed financial services provider
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