Global Market and Economic Update
Most major equity markets managed to end the month in positive territory, despite significant volatility in global bond markets towards the end of February amid concerns of rising inflation expectations and possible future interest rate moves.
Markets were driven higher during the month by strong Q4 2020 company earnings announcements and positive news on vaccine rollouts, with the US approving the Johnson and Johnson vaccine on 28 February.
There was also progress on a new US stimulus package, with a $1.9 trillion Covid relief bill passed by the US House of Representatives, following which it will be considered by the US Senate.
South African Market Update
South African equities ended higher for a fourth consecutive month, driven largely by strong performance from large cap resource counters on the back of significant positive commodity price moves.
Local bonds ended the month with flat performance, despite developed market sovereign bonds selling off significantly during February and ending with their worst monthly performance in over 35 years.
Local listed property ended the month with strong performance in line with other SA risk assets, as investors looked forward to a resumption of economic activity amid declining Covid-19 cases in the country.
The rand was broadly unchanged against most major developed market currencies, despite significant volatility during the month in connection with the budget speech as well as global bond yield movements.
South African Economic Update
On 24 February, Finance Minister Tito Mboweni tabled the 2021/2022 Budget in Parliament. The minister announced that revenue is expected to be around R100 billion ahead of expectations, largely due to tax collections from the mining sector coming in higher than expected due to booming commodity prices, coupled with a recovery in VAT.
While the country’s debt burden remains unsustainable, the moves by National Treasury to cancel a proposed R40 billion in tax hikes over the next four years and above inflation increases in personal income tax brackets will be welcomed by local citizens.
South African President Cyril Ramaphosa announced on 28 February that the country will move to a level 1 lockdown, to aid a resumption of economic activity amid declining daily Covid-19 cases.
SA headline CPI moved higher to a year-on-year figure of 3.2% for January (from 3.1% in December), with increases in fuel, food and non-alcoholic beverages being the largest contributors to the move.
Chart of the month: Global developed market sovereign bond yields moved significantly higher during the month, as markets started to price in expectations of higher inflation and interest rates in the medium and long term.
Source: Jeroen Blokland, TradingView.com, data as at 25 February 2021.
See below for a summary of the key market movements for the month of February:
• The JSE All Share Index (+5.9%) ended higher for a fourth consecutive month, as strong positive moves in large resource counters drove the performance of the local equity index.
• All local equity sectors ended the month higher, with Resources (+11.6%), Financials (+4.8%) and Industrials (+2.3%) finishing the month with positive returns.
• Listed property (+8.6%) delivered strong performance during the month, aided by the reopening of the economy amid declining local Covid-19 infections.
• Local bonds (+0.1%) ended the month largely flat, as significant global bond market volatility and net sales from foreigners had a negative effect on returns from the SA bond market.
• Cash delivered a stable return of +0.3% for the month.
• Most major developed equity markets ended the month with positive returns, despite selling off slightly towards the end of February. The MSCI World Index delivered a return of +2.6% for the month.
• Emerging market equities underperformed developed markets over the month, despite ending February in the green. The MSCI Emerging Markets Index delivered a return of +0.8% for the month.
• Major equity markets ended the month higher, with the UK’s FTSE 100 (+3.4%), Japan’s Nikkei 225 (+2.9%), Germany’s FSE DAX (+2.5%) and China’s Shanghai SE Composite (+0.8%) all ending the month higher.
• US equities had mixed performance for the month, with the S&P 500 (+2.8%) ending the month higher and the tech heavy NASDAQ 100 (-0.0%) ending the month largely flat, weighed down by poor performance from technology counters towards the end of February.
• From a commodity perspective, Oil (+18.3%) ended the month significantly higher, supported by disruptions in US supply in connection with the impact of adverse weather conditions. Platinum (+8.5%) also ended the month higher, while Gold (-6.5%) struggled, largely due to the increase in global government bond yields, which diminished the demand for the metal.
• The rand was largely flat against most major developed market currencies for the month. The rand depreciated against the US dollar (-0.6%), the euro (-0.5%) and the pound sterling (-2.4%) during the month.
*All data is sourced from Morningstar Direct as at 28/02/2021. 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)
