Economic Report

These reports take a look at highlights in the local and global markets over the preceding month.

Economic Report: Review of May 2022

In the month of May, local equity markets ended relatively flat, with resources, industrials, and SA industrials ending the month in negative territory. Financials outperformed as banks and insurance companies were amongst the best-performing stocks, rebounding handsomely from their poor performances in April. Globally, it was yet another tumultuous and volatile month as sentiment was weighed down by worries of a possible US recession that could emanate from rising interest rates, the ongoing Russian-Ukraine war, and soaring inflation. Rising oil prices and housing prices continue to be the biggest drivers of US inflation.

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Economic Report: Review of April 2022

In the month of April, local equity markets fell alongside global equity markets, with resources, SA industrials, and financials ending the month in negative territory. Miners, who have previously been a key driver of strong local market performance, were generally weaker in April. Production reports were disappointing amid weak iron ore prices as well as weaker gold and platinum group metal prices. Globally, a myriad of factors such as the continued Russian-Ukraine war, stringent COVID-19 lockdowns in China, and inflationary pressures weighed on sentiment, leaving investors and markets rattled.

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Economic Report: Review of March 2022

In the month of March, local equity markets ended flat as industrials had a tough month due to Prosus/Naspers ending weaker on the back of disappointing results from Tencent. After two months of strong performance, resources pulled back while financials rallied, benefiting handsomely from the strength of the rand. In attempt to curb inflation and stay ahead of the curve, the SARB increased the repo rate. Globally, the Ukraine-Russia crisis dominated headlines with sanctions and supply chain disruptions continuing to place upward pressure on energy and food prices. The eurozone inflation increased to an all-time high while US inflation also hit a staggering 7.9% causing US policymakers, for the first time since 2018, to increase the federal funds target range.

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Economic Report: Review of February 2022

After ending January on a rather subtle note, local equities advanced higher in the month of February, providing a hedge against the global turmoil that was sparked by tensions between Russia and Ukraine. Resources continued to extend their gains once more, underpinned by geopolitical tensions and uncertainty in Europe which drove commodity markets higher. Financials also extended their gains, buoyed by strong earnings from banks. On the global side, markets extended their losses as tensions between Russia and Ukraine intensified, leading to an outright invasion of Ukraine by Russia. Meanwhile, concerns over the speed and magnitude of interest rate hikes continued to weigh negatively on sentiment. Volatility made a comeback, unsettling growth and quality stocks the most while value stocks fell the least.

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Economic Report: Review of January 2022

After closing the year on a buoyant note, local equity markets ended January on a rather subtle note, pulling back from December’s rally albeit still managing to stay afloat. Resources stocks continued to be a positive contributor alongside financials while property retreated from last month’s gains to end the current month in negative territory. On the global side, markets took a toll as the rise in inflation and the prospects of tighter monetary policy spooked investors. Global sentiment also turned negative on the back of geopolitical tensions between Russia and Ukraine. The record high inflation also exerted pressure on the global bond market. In terms of investment style, value continued to outperform its growth and quality counterparts albeit in negative territory. Growth and momentum took the hardest hit following heightened inflation concerns which pushed yields higher and unsettled these parts of the market.

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Economic Report: Review of December 2021

In the month of December, local equity markets continued to extend their gains for the third straight month. While resources stocks continued its upward trajectory, financials however made a strong rebound to become the best performing sectors for the month, followed by listed property (which also extended gains from last month). On the global side, while labour and supply chain issues continued to exert upward pressure on inflation, fears over the Omicron variant faded as relatively less hospitalizations resulted from Omicron. Global sentiment, therefore, turned positive while the market also digested the commencement of a monetary policy tightening cycle. Developed market central banks have announced their plans to scale back on asset purchases. In terms of investment style, value outperformed its growth and quality counterparts.

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Economic Report: Review of November 2021

In the month of November, local equity markets extended their gains after the notable upside moves. Resources stocks continued to be the largest contributor to performance, also extending their gains from last month - the weakness in the rand remained supportive to large cap rand-hedge counters, while financials extended their sell-off. Interestingly, local property rebounded. On the economic front, the SARB’s monetary policy committee hiked interest rates, the first time since the emergence of COVID-19. On the global side, while labour and supply chain issues continue to cause inflationary pressures, the fourth wave of COVID-19 was the key driver of the dampened global market sentiment. Rising oil prices continue to weigh positively on the energy sector, albeit causing inflationary pressure on the other hand. Global equity markets were broadly lower, as investors found a safer haven in fixed income – this was one of the asset classes to offer relatively better performance, after US technology stocks.

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Economic Report: Review of October 2021

In the month of October, local equity markets staged a notable move to the upside, rebounding handsomely from the sell-off experienced in the previous two months. Resources stocks were the largest contributor to performance after their downturn in the last two months. The weakness in the rand was supportive to large cap rand-hedge counters, while financials and property edged lower. On the economic front, despite the IMF lowering its projections of global economic growth, it lifted SA’s economic growth projections. On the global side, inflation remains concerning factor in global markets, as labour and supply chain issues continue to cause inflationary pressures. This is despite the Fed’s firm position on the transitory nature of inflation. Rising oil prices also weighed positively on the energy sector. Despite bond yields touching a high of 1.7% during the month, global equity markets were broadly stronger, thanks to robust corporate earnings.

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Economic Report: Review of August 2021

Domestic equity markets retreated in August as sentiment for economic recovery eased slightly. Notably, South Africa launched the third phase of its vaccine rollout as the registration and vaccination for the 18-34 age group opened on 20 August 2021. According to the latest Department of Health data, approximately 12.6 million vaccines have been administered as of 31 August 2021. On the economic front, SA CPI made some notable moves to the downside. On the global side, equity markets recorded strong performances as the S&P 500 was up 2.9% for the month while the tech-heavy Nasdaq was up 4.0% in dollar terms. On the commodity front, Brent crude oil detracted by 4.4%, platinum was down 3.4% and gold was marginally down 0.03% for the month.

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Economic Report: Review of July 2021

Local In the month of July, local equity markets rebounded handsomely from losses of the previous month, thanks to strong recovery in the resources sector as commodity prices remain supportive. The rand continued to weaken with the social unrest being a contributor. On the economic front, social unrest that broke out in KwaZulu Natal and Gauteng took the spotlight and will have dampening ramifications for the country’s path to economic recovery. Global On the global side, the spread of the COVID-19 Delta variant unsettled cyclical areas of the market with bond yields retreating to levels last seen in February this year while the ECB tweaked its policy guidance on inflation. Talks of the Fed tapering off its bond purchases are starting to make their way into market sentiment. The Chinese regulatory crackdown of the private education and tech sectors led to a sharp sell-off in emerging market equities.

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Economic Report: Review of June 2021

During the month of June, local equity markets staged a notable move to the downside. This was as the resources rally continued to abate on the back of a fall in commodity prices, with the exception of oil. The weakness in the rand, following a four-month rally, dragged financials lower while property was the best-performing asset class. On the economic front, unemployment continued to deteriorate, reflecting the continued impact of COVID-19 and subsequent national lockdowns. GDP growth figures, on the other hand, came out positive for the first quarter of 2021. On the global side, inflation remains a key talking point, while the Federal Reserve (Fed) continues to deem it as transitory. Developed market sentiment was buoyed by President Biden’s spending proposal of $1.2 trillion, while value pockets of the market, which have been enjoying a rally, gave way to quality areas on the back of the hawkish policy tone of the Fed.

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Economic Report: Review of May 2021

Domestic equity markets extended their monthly gains in May as prospects of economic recovery continue to reflect positively on sentiment. Notably, South Africa launched phase two of its vaccine rollout with the aim of inoculating five million citizens aged 60 and over by the end of June. Thus far only approximately 1.3 million people have been vaccinated, although the vaccination drive does seem to have gained some traction. On the economic front, SA CPI made some notable moves to the upside. On the global side, equity markets were mixed as the S&P 500 was up 0.70% for the month whilst the tech-heavy Nasdaq lost 1.44%. On the commodity front, Brent crude oil rose by 3.3%, platinum was down 1.1% and gold was up 7.8% for May.

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Economic Report: Review of March 2021

Domestic equity markets extended their monthly gains in March. Prospects of economic recovery continue to weigh on sentiment with news of COVID-19 vaccine rollouts. Notably, South Africa has secured nine million doses of the Johnson & Johnson vaccine and 20 million doses of the Pfizer vaccine with the government’s intention to have 40 million South Africans vaccinated by the end of 2021. On the economic front, GDP growth for the fourth quarter made some notable moves to the upside, extending its growth from the previous quarter, supported by easing lockdown restrictions. Globally, equity markets remained robust with the S&P 500 and Nasdaq gaining 4.24% and 1.24%. A rise in US bond yields continues to weigh on sentiment as market participants fear that the $1.9 trillion stimulus package might cause the return of inflation in the long term. On the commodity front, Brent crude oil rose by 4% due to the Suez Canal blockage taking longer than expected to clear.

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Economic Report: Review of February 2021

Domestic equity markets extended their monthly gains in February as prospects of an economic recovery continue to weigh positively on sentiment. Higher commodity prices and a relatively lower oil price (albeit slowly making some upward moves) remain supportive to the SA economy. A relatively positive and upbeat budget also added positively to sentiment as national revenue surprised on the upside and efforts to contain the wage bill remained intact. On the global side, developed market equities made a slight recovery from their previous months’ lows with US small caps continuing to gain favour. The rotation from growth stocks to value stocks continued. US treasury yields spiked, triggering a move out of growth stocks, particularly in the US technology sector which is mostly viewed as overpriced. Yields have been rising as investors continue to price in expectations of higher inflation given the imminent fiscal injection.

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Economic Report: Review of January 2021

Local equity markets had a strong start to the year as optimism about a global economic recovery, the decreasing number of COVID-19 cases and vaccine rollouts across the globe boosted sentiment. The outlook for the local economy seems somewhat less gloomy as commodity prices and flows to emerging markets were supportive. However, fiscal risks continue to prevail on the back of unsustainable debt levels. On the global side, developed market equities had a tough start to the year as most developed market regions settled in negative territory. Investors seem to have rotated into US small caps. They delivered the strongest returns for the month, rallying 6.24% (in USD) while emerging market equities enjoyed decent gains of 2.97% (in USD).

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Economic Report: Review of December 2020

Local equity markets ended the last month of 2020 on a positive note, albeit retreating from the strong gains of the previous month. Resources and financials led the gains. Property continued to surprise on the upside, remaining the best-performing asset class for the second consecutive month. The rand, which had its strongest monthly move since May 2020, provided tailwinds for rand-hedge stocks. On the economic front, GDP growth for the third quarter made some notable moves to the upside, albeit from a low base, supported by easing lockdown restrictions. On the global side, equity markets remained robust as the US tech sector continued in strength. However, US small caps had their best months despite the backdrop of increasing COVID-19 cases globally. Emerging markets also turned in impressive performance as the dollar weakness remained supportive.

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Economic Report: Review of November 2020

Local It was truly risk-on for global markets in November, on the back of the positive COVID-19 vaccine news and hopes of the world returning to normality. The market was further supported by the announcement that Joe Biden had emerged victorious in the US election. Against this backdrop, local assets benefitted with equities, bonds, property and preference shares all experiencing a strong month Global November can be described as a turning point for global markets in the aftermath of COVID-19. During the month, three vaccines that are effective against the virus, were announced. This news boosted investor sentiment and increased optimism about the near-term economic outlook. As a result, global equity markets rallied strongly, led higher by technology stocks as seen in the performance of the Nasdaq, which advanced 11.80% in US dollar terms

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Economic Report: Review of October 2020

Local equity markets continued deeper into negative territory as the resource sector continued its downward trend alongside financials which took a downturn. On the economic front, the rise in business and manufacturing activity continued as a result of eased lockdown restriction. Globally, equity markets ended lower as concerns over the resurgence of COVID-19 cases spooked investors across major developed markets. In contrast, Chinese economic fundamentals are showing notable signs of recovery. In terms of investment styles, while growth stocks have had a multi-year rally, some signs of rotation to value stocks are beginning to show as high-flying tech stocks came under pressure in October.

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Economic Report: Review of September 2020

Local Local equity markets had yet another disappointing month. Large-cap, rand-hedge dominant stocks (i.e. Naspers, Anglo American and BHP Billiton) sold off notably, offsetting the in retail stocks’ rally that was bolstered by the easing of lockdown restrictions. On the economic front, interest rates were left unchanged as inflation risks remain muted given the recent currency strength and lower oil prices. Global On the global front, markets came under pressure alongside an unsupportive rand. The run-up to the US election dominated market news, together with protracted additional stimulus talks between the Democrats and Republicans. The Fed Chair reiterated his call for another fiscal response to aid the US economic recovery. The sell-off in US tech stocks contributed to the lag in US markets. Meanwhile, European markets tumbled as investors reacted to the resurgence in COVID-19 cases and ensuing tightening of lockdown restrictions.

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Economic Report: Review of August 2020

After four months of consecutive positive returns, local equities ended the month of August in negative territory. Gold mining, financials and property stocks took a nosedive while the rally in the consumer goods sector helped limit losses. Small caps, unlike mid- and large-cap stocks, delivered a positive return. The strength of the local currency was not supportive given the dominance of rand-hedges on the JSE. On the global front, US markets continued their rally, lifting global equities higher on the back of high-flying tech names. Facebook, Apple, Amazon, Netflix, Google, and Microsoft continued to dominate the market. However, short-lived rotations in and out US tech have become more prevalent given the lofty valuations in the US. There are encouraging signs that the US economy is beginning to recover as unemployment trends lower while economic activity in developed and emerging market countries is ticking up.

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Economic Report: Review of July 2020

Local Local equities ended the month of July higher, albeit much lower than the strong gains recorded in June. Gold mining stocks continued to be the leading gainers with the gold price rising to record levels. Global On the global front, emerging market equities continued to outperform developed market equities as the unprecedented global stimulus found its way to emerging market economies. While global equity markets (particularly the US) continue to be driven by sentiment (and a handful of technology stocks), economic fundamentals are not yet at pre-pandemic levels albeit showing modest signs of recovery.

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Economic Report: Review of June 2020

Local The risk-on environment continued in June with equity markets fast approaching their pre-COVID 19 levels. The equity rally was largely driven by the partial reopening of the domestic economy with manufacturing activity showing a welcomed improvement. The bleak fiscal picture painted by the Finance Minister (in his supplementary budget) was not sufficient to derail the market as local property led the gains followed by small-cap counters Global June proved to be another good month for risky assets, as global economies slowly started to reopen. Markets took comfort from the fact that governments and central banks appear to be working together to alleviate the impact of the Coronavirus-inspired recession and to support the economy. Emerging markets meaningfully outperformed developed markets, as the MSCI Emerging Markets Index rallied 6.96% in US dollar (5.82% in ZAR) and the MSCI World firmed 2.65% in US dollar (1.16% in ZAR)

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Economic Report: Review of April 2020

Markets staged a solid comeback in April, rebounding from the steep drawdowns of the previous month. The gradual easing of COVID-19 restrictions in many developed countries, preceded by aggressive stimulus measures from governments, helped propel the April rally. Global developed market equities were the main drivers of the rebound in local markets as the rand continued to weaken, albeit not as much as the blow-out seen in the previous month.

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Economic Report: Review of March 2020

The outbreak and spread of the coronavirus pandemic continued to take centre stage during March as the situation deteriorated with a growing number of confirmed cases and deaths. This was particularly pronounced in developed market economies (i.e. US and Europe).

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Economic Report: Review of February 2020

COVID-19 has taken centre stage in the political, economic, social and market landscape. Heightened anxiety over its impact on global growth and its possible catalytic effect to a global recession drove the risk-off sentiment seen in February. Investors are hunting for safe-haven assets amid uncertainty. COVID-19 has exerted a further strain on the economy, given the already-existing domestic fiscal woes. As a result, the rand experienced another sharp sell-off this month. Globally, the same COVID-19 sentiment reverberates as central banks engaged in emergency fiscal and monetary stimulus measures to curb the dire impact of the virus. This heightened uncertainty has dragged equity valuations to incredibly low levels as markets have officially entered bear territory.

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Economic Report: Review of January 2020

After a handsome rally in December 2019, local equities experienced “a fall from grace” as the sharp weakness of the rand was not enough to even lift the market into positive territory in January, except for a few rand-hedge market darlings such as Naspers and British American Tobacco. Domestic equities remain out of favour as local headwinds of policy uncertainty, slow pace of reforms and fiscal woes prevail. Investors are rather finding value in local bonds given the attractive levels of real yields. Globally, the outbreak of the coronavirus took centre stage, raising concerns over its impact on global growth. As a result, developed and emerging market equities recorded disappointing performances in base currency. However, the sharp depreciation of the rand bolstered global returns in rand terms.

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Economic Report: Review of December 2019

Domestic equities buoyantly staged a recovery in December as the resource sector lifted equity markets out of last month’s negative territory, characteristic of a “Santa Claus rally”. The SA economy recorded negative growth in the third quarter, reflective of the prevailing fiscal quagmire, exacerbated by the slow pace of reforms (particularly in state-owned institutions such as Eskom). The rand firmed up strongly over the month while inflation continues to taper down. Globally, positive sentiment continued to prevail as talks of the first phase of the deal between the US and China led to an agreement between the two powers. As a result, developed and emerging market equities recorded strong performance in their base currency. However, returns in rand terms were dampened due to the sharp firming of the rand.

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