As at the end of the first quarter of 2022 (31 March 2022) the price of the Satrix 40 ETF was R69.33, an increase of 3.2% (R67.20) from the end of the last quarter of 2021 and an increase of 12.5% (R61.62) from 31 March 2021. Let’s analyse what happened during the first 3 months of 2022.
External factors at play
The invasion of Ukraine by Russia - which is now a full on war between the two nations - persistent global inflation and an aggressive outlook towards global interest rates has provided plenty of catalysts for volatility during the first quarter of 2022. However, through that volatility in the first quarter, we have seen the Satrix 40 ETF managing to add slightly more than 3% during the period.
In a world that is trying to distance itself from fossil fuels (coal and oil) it is ironic that companies like Sasol and Exxaro top the list of performers this quarter. This is due to their performance benefiting from high commodity prices as a result of the conflict in Ukraine. Having said this, Sasol has also reduced liabilities and increased operational efficiencies recently which has also contributed to its performance.
The average basket price for gold and platinum group metals (PGMs), remain elevated in 2022 after the surprising highs of 2021. These precious metal prices are expected to be supportive of future earnings of the likes of Sibanye, Gold Fields and Anglo American Plc. The rise in iron ore and PGMs would’ve also benefited Anglo’s share price indirectly through its subsidiaries; Amplats and Kumba Iron Ore.
Five of the top 10 performers in Q1 2022 are financial services businesses, namely: Nedbank (+33%), Standard Bank (+30%), Firstrand (+27%), Discovery (+27%) and ABSA Group (+25%). The banking sector in particular has seen renewed vigour as banks attempt to bounce back from a hard lockdown and look to improve margins as domestic interest rates begin to increase.
Naspers and Prosus were unsurprisingly at the top of the list. China battled with an Omicron outbreak which resulted in lockdowns likely to slow an already slowing Chinese economy. JPMorgan also downgraded the target prices of 28 Chinese tech companies, one of these being Tencent (Nasper’s subsidiary Prosus, owns 29% of Tencent), as Tencent could incur a record fine for allegedly violating Chinese anti-money laundering regulations. Furthermore, Prosus announced that it will be writing down the full $700 million (roughly R10 billion) value of its 25.7% stake in Russia's biggest internet company, the VK Group. All of this resulted in Tencent plummeting to its lowest level in over 2 years which contributed to the poor performance of Naspers and Prosus.
Mondi’s poor performance could be attributed to weakened profits due to increased energy costs and the war, as a fifth of Mondi’s profit stems from Russia.
Richemont (a luxury goods company) was one of the worst performers of the quarter. This is in stark contrast to the previous quarter where Richemont’s share price grew by 55%. Realistically speaking, further growth was not expected after such a surprising final quarter of 2021. It is safe to say that people didn’t spend their money on luxury goods during “Januworry” or spoil their loved ones too much for Valentine’s Day!
Keep going, you’re doing great
Most equity markets worldwide were down substantially in Q1 2022 but the Satrix 40 ETF managed to give investors a small positive return as a result of the performance of the resources and financial services businesses mentioned above. Whether SA can keep outperforming is to be seen but remember that investing in the stock market is a long term pastime - you need to be in it to win it. So remember not to panic and stick to your plan!