October was marked by a ‘risk-off’ sentiment, driven by uncertainty surrounding the U.S. elections on 5 November. A major concern is the potential impact on emerging markets, as a Donald Trump presidency is expected to impose significant tariffs on imports to the US, which could weaken the South African Rand and other emerging market currencies.

Yields rose significantly in the South African bond market, with the R2030 yield increasing by 44 bps, while the longer-dated R2048 bond yield rose by 58 bps. Consequently, the FTSE/JSE All Bond Index (ALBI) returned -2.20% for October. Within the ALBI, the 7-12 year and 12+ year maturity buckets recorded declines of -2.13% and -3.42%, respectively. The shorter-term 1-3 year and 3–7-year buckets experienced smaller losses of -0.06% and -1.21%, respectively.

Inflation-linked bonds were also in negative territory during October. The front end of the yield curve saw the I2025 bond yield rise by 83 bps, while the longer-dated I2050 bond yield increased by 18 bps. As a result, the FTSE/JSE Inflation-Linked Index (CILI) returned -1.03%, and the Government Inflation-Linked Bond Index (IGOV) returned -1.07% for the month.

The Rand weakened in October as global risk appetite remained subdued. Contributing concerns included the U.S. elections, the Federal Reserve’s cautious stance on further rate cuts, and the Medium-Term Budget Policy Statement (MTBPS). While the Rand briefly reacted to the MTBPS announcement, it quickly stabilised. The local currency ended October weaker, however, closing at USD/ZAR 17.75 compared to USD/ZAR 17.11 (SARB) of September.

Looking ahead, we remain cautious amid heightened market risk aversion. We expect central bank actions, both locally and globally, to shape market conditions for the rest of this year and into the next. Although further rate cuts are anticipated, the pace may slow if inflationary pressures emerge from the US political landscape. We will continue to monitor global and local political developments and inflation trends to guide our investment strategy, ensuring alignment with our long-term outlook.

The macro environment remains broadly positive for both bonds and equities, with equities still pricing in lower rates. Our house view is unchanged, and we anticipate a soft landing in the US which should also see US equity markets broaden out as the year progresses. 

We trust you have enjoyed and benefited from this report and please do not hesitate to contact Orion Investment Managers at: info@orionim.biz should you have any questions or queries.

Sincerely,

Adrian Meager
Orion Investment Managers
Managing Director and Chief Investment Officer