Monthly Market Commentary – July 2020

July was another positive month for South African Investors from a return perspective. SA equity continued to recover from its Q1 losses, returning between 2.4% and 3.0% (depending on the index used). However, this was solely driven by resource companies which returned 9%, Financials were essentially flat 0.4%, whilst Industrials lost -1.3%. Globally, markets also performed well, in rand terms the MSCI AC World returned 3.2% in July. SA property was the only detracting asset class, losing -3.2%, this does however come off a stellar June when the SAPY index gained 13.4%. Markets across the world are now near or above their pre-COVID-19 market crisis levels. The strength and speed of the recovery from the lows reached in March is leading to other questions and concerns. Are markets facing burn-out and are the risks appropriately assessed given the murky outlook? Sticking to a well-crafted financial plan underpinned by a robust portfolio construction process is paramount in times like this.

SA Drivers

IMF Loan Approved | Importancy High

The IMF approved South Africa’s request for a $ 4.3bn loan. The loan is earmarked to mitigate the adverse social and economic impact of the COVID pandemic. The approval of the loan is dependent on the IMF’s assessment of the country’s debt sustainability. So this is a positive assessment of the government’s fiscal plans. The DA and EFF have, however, raised their own concerns.

SARB Cuts repo rate | Importancy High

In a divided vote (3:2) the reserve bank’s monetary policy committee (MPC) cut the repo rate by 25bps to 3.5%, the lowest rate in 47 years. This is the fifth cut this year. Forecasts suggest the economy will contract -7.3% this year, before recovering to 2.7% in 2021 and 2.8% in 2022. Inflation forecasts were little changed, and the central bank is not foreseeing deflationary scenarios arising.

COVID: Capricious Lockdown Amendments| Importancy Medium

On the 12th of July President Ramaphosa announced amendments to South Africa’s lockdown restrictions. Including:

Pro-longing the ban on tobacco sales, renewed ban on alcohol sales, re-imposing a nightly curfew, and in an arm-twisted move, allowing taxis to operate at 100% capacity.

SA Unemployment| Importancy Medium

Gold has surged to just under $2000/oz in July, posting a record high. This is despite demand declining year on year by -11% in Q2. Investors remain buyers, due to: Low yield, low interest rates and soft USD, stimulatory central bank actions and QE and hedges against future inflation, uncertainty & volatility. Foreign investors have however been net sellers of SA Gold stocks, despite the index hitting record highs. Citing better prospects and concerns relating to the high cost of extractions

COVID: SA Relaxes to level 3 | Importancy Low

Cyril Ramaphosa reduced lockdown restrictions in June to level 3, despite rising Covid-19 cases, to salvage the economy.

 

Asset Class Total Returns – ZAR

 

Global Drivers


Gold Rally | Importancy Medium

Gold reached a record high of $1981 in July. Investors are skeptical of the fragile state of the global economy and are using the commodity as a hedge against future expected inflation.

Earnings releases | Importancy High

In a divided vote (3:2) the reserve bank’s monetary policy committee (MPC) cut the repo rate by 25bps to 3.5%, the lowest rate in 47 years. This is the fifth cut this year. Forecasts suggest the economy will contract -7.3% this year, before recovering to 2.7% in 2021 and 2.8% in 2022. Inflation forecasts were little changed, and the central bank is not foreseeing deflationary scenarios arising.

COVID: Vaccine Progress | Importancy Low

Vaccine trials are progressing, with the Oxford, Moderna and Pfizers trials still producing optimistic results. The US has swept in to secure the first 100m doses from Pfizer in a record $1.95bn deal. It is still under scientific investigation, but there is mounting evidence that immunity diminishes over time. This would be a major setback to a vaccine, providing the ultimate cure.

Tik Tok – Tension is brewing | Importancy Medium

Geopolitical tension between the US and China continued to rise. Tik-Tok, security concern associated with the viral Chinese video sharing app has become a personal vendetta of President Trump. Restrictions or bans could have retaliatory knock on effects to other Chinese and Global companies. A “Tech Wars” of sorts. The US indicated that Chinese hackers targeted US Companies involved in virus research. The Chinese consulate in Houston was ordered to close. China’s abuses against ethnic minority Uyghur people has captured global headlines. US imposes visa restrictions on Chinese nationals.

EU Rescue Package | Importancy Medium

EU tables a €750bn ($860bn) economic rescue package. €400bn worth of funds will be raised in capital markets whilst the remaining balance will be in the form of low-interest loans. The European Commission will allocate funds to the nations hardest hit by the pandemic.

 

Asset Class Total Returns – USD

All information provided courtesy of Portfolio Metrix – adapted and published with permission. No copyright infringement intended.

Comment

There is no comment on this post. Be the first one.

Leave a comment

Contact us
close slider

If there’s anything you would like to discuss, please drop us a line and we’ll get back to you.