Global Market and Economic Update
Despite starting the year strongly, global markets ended the month slightly weaker, as ongoing concerns around the pace of global Covid-19 vaccine rollouts as well as continued lockdowns in the UK and certain areas in Europe weighed on sentiment.
US President Joe Biden was inaugurated on the 20th of January, as the US courts rejected continued unsubstantiated claims of voter fraud by Donald Trump and his campaign. This followed violent protests from Trump supporters at the Capitol building, a demonstration which led to the death of five people.
At its meeting in January, the US Federal Reserve left interest rates unchanged and announced that it will continue with its bond-buying programme. This, along with a proposed $1.9 trillion economic aid and rescue package announced by President Biden, will continue to provide support to the US economy in its recovery from the Covid-19 pandemic.
South African Market Update
South African equities finished the month higher, bucking the trend in global developed markets slightly. The upward move in the local index was largely due to strong performance from large index constituents including Naspers and Prosus, as well as resource counters.
Local bonds ended the month higher, supported by foreign buying (albeit at a slower pace than previous months) as well as a slight flattening of the curve resulting from the decreased likelihood of further interest rate cuts.
Local listed property continued to exhibit volatile performance, as the stricter adjusted level 3 lockdown announced at the end of December acted as a headwind and increased uncertainty regarding the outlook for the sector.
The rand was weaker against most major developed market currencies for the month, as broad US dollar strength acted as headwind for most emerging market currencies.
South African Economic Update
The South African Reserve Bank’s Monetary Policy Committee (MPC) announced during the month that it will leave the repo rate unchanged at 3.5%. This was the third consecutive meeting where the MPC decided to leave the rate unchanged, despite two of the five members of the MPC favouring a cut.
SA headline CPI eased to a year-on-year figure of 3.1% to the end of December (from 3.2% in November), as transport inflation eased following the petrol price decrease in December. The rate of inflation for the 2020 calendar year was the lowest since 2004 and the second lowest since 1969.
South Africa’s trade surplus narrowed to R32 billion in December (following a revised figure of R35 billion for November), with the trade balance supported by strong precious metal prices.
Chart of the month: One of the more talked about shares in January was GameStop, an electronics and gaming company that surged in price during the month as a large number of retail investors bought the share in an attempt to drive large hedge funds out of short positions in the company.
Source: Charlie Bilello, StockCharts.Com, data as at 26 January 2021.
See below for a summary of the key market movements for the month of January:
• The JSE All Share Index (+5.2%) ended the month higher for a third consecutive month, with the strong performance driven by large industrial and resource constituents.
• From a sector perspective, Industrials (+8.4%) and Resources (+5.1%) ended the month with decent performance, while Financials (-2.6%) struggled.
• Listed property (-3.2%) gave up some gains during the month, as the uncertainty around the future prospects of the sector were exacerbated by the more stringent level 3 lockdown measures.
• Local bonds (+0.8%) ended the month higher, supported by continued foreign buying as well as a slight flattening in the yield curve following the decreased chances of future interest rate cuts.
• Cash delivered a stable return of +0.3% for the month.
• Most major developed equity markets struggled to generate positive returns for the month, as continued concerns around Covid-19 related issues weighed on global sentiment. The MSCI World Index delivered a return of -1.0% for the month.
• Emerging market equities fared better than developed markets over the month, supported by decent returns from Asian equity markets. The MSCI Emerging Markets Index delivered a return of +3.1% for the month.
• Major equity markets showed mixed performance for the month, with the UK’s FTSE 100 (-0.3%), Japan’s Nikkei 225 (-0.6%)and Germany’s FSE DAX (-2.8%) all ending the month in the red. China’s Shanghai SE Composite (+1.5%) was one of the few major equity markets to end the month in positive territory.
• US equities had mixed performance for the month, with the tech heavy NASDAQ 100 (+0.3%) ending slightly higher and the S&P 500 (-1.0%) ending the month in the red.
• From a commodity perspective, most major commodities ended the month higher, supporting the prices of most local resource counters. Platinum (+10.0%) and Oil (+7.9%) ended the month higher, while Gold (-1.3%) finished the month lower, as it faced a headwind from a strong US dollar.
• The rand was weaker against most major developed market currencies for the month. The rand depreciated against the euro (-1.7%), the US dollar (-2.4%) and the pound sterling (-2.9%) during the month.
*All data is sourced from Morningstar Direct as at 31/01/2021. The performance of South African asset classes is quoted in rands and the performance of global asset classes is quoted in US dollars.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
