Monthly Market Commentary – November 2020

It was an excellent month for South African (SA) asset classes with SA property experiencing some welcome respite, earning 17.5%. The rand continued to strengthen, which depressed rand returns for global asset classes, but global risk assets still had a very good month. Global Bonds were the only negative returning building block for the month. Pleasing vaccine trial results and Joe Biden’s election win were the key market drivers for the Month.

November proved to be an extremely fruitful month for markets as three different vaccine trials reported successful phase III COVID-19 results on three consecutive Mondays. This provided a much-needed boost to equities, particularly more cyclical companies and those hardest hit by the impact of Coronavirus. The result of this was a significant rotation towards cheaper ‘value’ stocks and away from more expensive ‘growth’ stocks. Markets had already been edging up after it became clear Joe Biden had won the US presidential election, although President Trump disputed the outcome and unsuccessfully tried to overturn the results in the courts claiming voter fraud.

SA Drivers

US Election and Rating Downgrades | Importance High

Joe Biden won the 2020 US election. A Biden presidency and a divided Congress is seen as a constructive outcome for risk, whilst Fed Minutes showed that the committee is waiting on the sidelines with more stimulus. Moody’s and Fitch both downgraded SA further into junk status. With only S&P giving SA a reprieve and maintaining both its rating and stable outlook. Moody’s now places SA at two notches into junk and Fitch down to three notches below investment grade.

Platinum Demand Rockets and Reg 28 circular | Importance Medium

Platinum investment demand rocketed 291% in the three months to September alone. Demand has been fueled by the global focus of reducing carbon dioxide emissions and supply deficits arising due to COVID-19 transport restrictions. A treasury circular proposed that inwardly listed foreign instruments could be classified as local. The Regulation 28 implications were not considered, and the proposal was subsequently withdrawn.

COVID-19 Vaccine Progress & Local Cases | Importance High

Vaccine trial results are looking very positive and have bolstered markets across the world. SA has however yet to detail a tangible procurement plan for vaccines and resurgent cases (particularly in the Eastern Cape) are making local investors jittery.

 

Asset Class Total Returns – ZAR

 

Global Drivers


European Lockdowns and Brexit Impasse | Importance Medium

Major European economies spent November in lockdown. This impacted economic activity across the region, with the services industry once again being particularly affected. There was seemingly no real progress on reaching a deal as the end of the transition period approaches– the main sticking points remain state aid and fishing rights.

COVID-19 Vaccine Progress and US Election | Importance High

Vaccine trial results are looking very positive and have bolstered markets across the world. The US continues to post daily records case levels, so a successful outcome would come as a welcome respite. oe Biden won the 2020 US election. A Biden presidency and a divided Congress is seen as a constructive outcome for risk, whilst Fed Minutes showed that the committee is waiting on the sidelines with more stimulus. A less erratic leader should bolster the dollar’s safe-haven status and hopefully ease trade tensions.

Tesla enters S&P 500| Importance Low

Tesla will finally join the S&P500, making it one of the 10 most valuable companies in the Index. The S&P500 committee only admits companies that have enjoyed a minimum of four consecutive profitable quarters.

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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