Monthly Market Commentary – August 2020

August was another good month for most world equity indices, with the MSCI World Equity Index up over 6% in Rand terms. The local FTSE/ JSE All Share was down 0.3% over the same period. Local bonds as measured by the ALBI were up 0.89%, while cash delivered 0.39% (STeFI). Listed property continued to struggle, losing 8.6% over the month. The Rand was up 0.5% against the US Dollar for the month.

Some other highlights:

  • Microsoft’s share price rose 5% in one day after announcing it was in discussions to buy TikTok in the US.
  • Tencent reported a profit of 33.1 billion yuan, exceeding all analyst estimates.
  • Apple’s market value exceeds USD2 trillion, and is currently the most valuable company in the world.
  • Japan’s GDP suffered it’s biggest contraction in 40 years.
  • SA retail sales were down 22.8% in the second quarter, compared to last year.

SA Drivers

SA Banks prepare for the worst | Importancy High

SA banks have reported massive increases in bad debts and credit impairments amid the coronavirus fallout. Provisions for bad debts far larger than those provided for during the Global Financial Crisis (GFC) have been applied within the industry. Standard Bank, the best performing bank, reported a fall of 44% to their headline earnings per share (HEPS).

Ramaphosa and graft | Importancy Medium

Pres. Ramaphosa has taken a firm stance against corruption in his party which was backed by the NEC. Some political commentators argue that the position taken by Pres. Ramaphosa has strengthened his hand. Scandals of corruption surrounding the coronavirus crisis & PPE supply forced the ANC to at least appear to be taking action. The news of the above resulted in a significant dent to SA confidence.

Lockdown levels relax as loadshedding schedules scale up | Importancy High

SA was moved to Covid-19 alert level 2 midway through the month. Contentious bans on the sale of alcohol and tobacco were lifted as well as relaxation of inter-provincial travel. However, the relaxation of alert levels in an effort to kickstart the economy was met with a constrained power grid forcing Eskom to implement load-shedding. Eskom CEO Andre DeRuyter warned that the current implementation of a deep maintenance  programme will result in load-shedding until August-September 2021.

Foreign investors temper in SA bonds | Importancy Medium

Foreign bond holdings fell to 30.1% as of 31 July, from 30.6% (and as high as 37.3%) in January. Foreigners have sold a net R54bn($3.1bn) of SA debt year-to-date, falling to the lowest level in more than 8 years.

 

Asset Class Total Returns – ZAR

 

Global Drivers


The Fed shifts its framework | Importancy High

Fed chair, Jerome Powell said that monetary policy focus will shift to seek inflation that averages 2% over time, a step that implies allowing for price pressures to overshoot after periods of weakness. It also adjusted its view of full employment to allow labour-market gains to reach more workers. The more relaxed stance on inflation will help provide firmer foundations for a recovery.

Japan PM resigns | Importancy Medium

Prime Minister Shinzo Abe, Japan’s longest-serving premier, announced his resignation because of poor health. The resignation will trigger a leadership race in the Liberal Democratic Party (LDP). Mr. Abe will be remembered for implementing “Abenomics” in an effort to boost prices and economic activity in Japan. However, second quarter GDP figures essentially wiped out “Abenomics” gains that have been building for almost a decade.

Turkish lira supply squeeze | Importancy Medium

Efforts from Turkish regulators to stem lira depreciation caused further stress in broader emerging markets. Foreign banks barred from closing trades, tensions with Greece over disputed areas and inflation concerns fueled the markets aversion to Turkey and emerging markets in general. Although this didn’t have a massive impact on market performance, it was nonetheless unmissable.

Apple breaks $2trn barrier | Importancy Medium

Apple made Wall Street history when its 2020 stock surge pushed its market value past $2 trillion, the first time a US company has surpassed that level. The company’s market value made it more valuable than the FTSE 100 (largest 100 companies listed in UK) highlighting the extent of the dominance mega cap tech has enjoyed.

UK GDP Collapse| Importancy Medium

IUK GDP fell 20.4% – the worst of any G7 nation in the three months to June and the biggest quarterly decline since comparable records began in 1955. The downturn is also deeper than any other country in the EU and surpassed a 12.1% quarterly drop in the eurozone.

 

Asset Class Total Returns – USD

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

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