Global Market and Economic Update

Most major global equity markets ended the month with positive returns, as economic data reflecting the recovery from the Covid-19 pandemic continued to surprise on the upside. Equity investors continue to remain bullish, with another US stimulus package on the horizon, despite concerns around a ship stuck in the Suez Canal, which disrupted a major global shipping route for a few days during the month.

March was dominated by market participants taking note of movements in global bond markets, as yields continued to move higher (moving prices lower), led by US Treasuries, as global bonds ended the quarter with their worst return in decades.

The uptick in global bond yields appears to be connected to inflation expectations, with fixed income markets pricing in higher inflation in the medium term, which is likely to lead to interest rate increases from the US Federal Reserve (Fed). This, despite the Fed’s insistence that they will continue to keep monetary policy accommodative as the US economy continues its recovery from the shock of the Covid-19 pandemic.

South African Market Update

South African equities ended higher for a fifth consecutive month, with positive performance across all three major local equity sectors.

Local bonds ended the month lower, despite positive news on lower-than-expected inflation, a reduction in government bond auctions, a lower-than-expected budget deficit and a stronger rand. The weak performance from bonds was largely driven by SA yields drifting higher (moving prices lower) in reaction to movements in global bond markets.

Local listed property ended the month higher, however, weak performance from some of the larger counters including Growthpoint and Redefine led to muted returns from the SA Listed Property Index.

The rand was stronger against most major developed market currencies, despite weakening significantly against the US dollar at the beginning of March, only to recover the lost ground towards the end of the month.

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 fourth consecutive meeting where the MPC decided to leave the rate unchanged, however, unlike recent meetings, the decision was unanimous, with all five members voting to keep rates on hold.

Available data for Q1 2021 appears to indicate a slow start to the year for economic growth, which can largely be attributed to the introduction of adjusted level 3 lockdown restrictions during January in reaction to the second Covid-19 wave in the country.

SA headline CPI moved lower to a year-on-year figure of 2.9% for February (from 3.2% in January). This was only the third time in over a decade that year-on-year inflation has fallen below the bottom end of the target band and was largely driven by the contribution of lower medical insurance costs.

Chart of the month: Global bond yields continued to move higher during the month (moving prices lower), as markets priced in expectations of higher inflation and interest rates in the medium term.

Source: Bloomberg, data as of March 2021.

See below for a summary of the key market movements for the month of March:

• The JSE All Share Index (+1.6%) ended higher for a fifth consecutive month, driving the index to double digit gains for the quarter.
• All local equity sectors ended the month higher, with Industrials (+1.9%), Financials (+1.7%) and Resources (+1.2%) finishing the month with positive returns.
• Listed property (+1.2%) delivered positive performance for the month, despite weak performance from some large index constituents placing a drag on the return from the sector.
• Local bonds (-2.5%) ended the month lower, as positive news on the local front was not enough to offset the movement in SA bond yields in reaction to global bond yield movements.
• Cash delivered a stable return of +0.3% for the month.
• Most major developed equity markets ended the month with positive returns, with US equities being the largest contributor to the performance of the index. The MSCI World Index delivered a return of +3.4% for the month.
• Emerging market equities underperformed developed market equities over the month, ending March with a negative return. The MSCI Emerging Markets Index delivered a return of -1.5% for the month.
• Major equity markets showed mixed performance for the month, with Germany’s FSE DAX (+5.4%) and the UK’s FTSE 100 (+2.8%) ending the month higher, while Japan’s Nikkei 225 (-2.3%) and China’s Shanghai SE Composite (-3.3%) ended the month in the red.
• US equities delivered decent performance for the month, with both the S&P 500 (+4.4%) and the tech heavy NASDAQ 100 (+1.5%) ending the month in positive territory.
• From a commodity perspective, most major commodities ended the month lower. Platinum (-1.8%) and Oil (-3.9%) ended the month in the red. Gold (-3.0%) also ended the month lower, weighed down by the increase in global bond yields, which increased the opportunity cost of holding non yielding assets.
• The rand was stronger against most major developed market currencies for the month. The rand appreciated against the euro (+5.9%), the pound sterling (+3.9%) and the US dollar (+2.6%) during the month.

*All data is sourced from Morningstar Direct as at 31/03/2021. 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)