Monthly Market Commentary – December 2020

The rand continued to strengthen in December as South Africa (SA) benefitted from the risk-on environment and emerging market (EM) appetite by global investors. SA property was once again the strongest performing asset class with a 13.7% return for the month (+17.5% in November). The strengthening local currency depressed rand returns for global asset classes, despite reasonable returns in US dollars for the month. SA equity continued its rally led by resources once again with the sector meaningfully outperforming in 2020.

Risk assets fared well during the month of December as investors looked through grim Covid-19 infection and death rates globally as well as the reintroduction of further restrictions on social mixing throughout Europe. Vaccine approvals in several countries increased optimism feeding a general risk-on environment that benefitted the broader market and emerging markets in particular. This was accentuated by a weakening US dollar as markets factored in stimulus measures and a democratic clean sweep. A Brexit deal was finally reached towards the end of December providing some clarity to an otherwise messy situation that has plagued the UK for several years. US Congress agreed on extending pandemic relief measures after much deliberation which further supported markets in the month.

SA Drivers

COVID-19 Developments | Importance High

Holiday plans for South Africans were dashed as the President announced further lockdown restrictions affecting certain COVID-19 hotspots such as the Garden Route. A new variant stemming from South Africa led to increasing case numbers throughout the country. All the while, government dithered on procuring vaccines and putting in place an effective rollout strategy.

Platinum Demand Rockets and Reg 28 circular | Importance Medium

Deputy Reserve Bank Governor, Kuben Naidoo, stated that while SA is taking steps to further open its financial markets, there was good reason to retain prudential limits on capital leaving the country. This followed a controversial circular from Treasury regarding the treatment of locally listed ETF’s that hold offshore assets. Certain local index managers used the opportunity to grab headlines.

COVID-19 Vaccine Progress & Local Cases | Importance Medium

Q3 GDP jumped 13.5% after a significant fall of 16.6% in Q2. This was slightly more than expected by economists and commentators. Although an impressive rebound, it comes off a low base from the second quarter. The economy is still 5.8% smaller than it was at the end of 2019. Additionally, commodity prices surged in December as Iron Ore increased 25% and Platinum rallied 10.8% in the month (in USD).

 

Asset Class Total Returns – ZAR

 

Global Drivers


Brexit Deal | Importance High

The end of the month brought along some much-needed positive Brexit developments with a deal being agreed between the UK and EU which provides a certain amount of clarity – no goods tariffs, no hard Irish border, visa free travel to the EU for up to 90 days, no European Court of Justice involvement in legal disputes and a reduction in EU fishing quotas in UK waters. These revelations provided a much-needed bounce to UK companies as well as the pound.

Coronavirus cases and death surge| Importance High

Amid good news surrounding vaccines, the Covid-19 second wave tightened its grip resulting in increasing infection and death rates. Concerns were raised over variants discovered in both the UK and South Africa that seemed to be more contagious and raised concerns over the effectiveness of vaccines to the South African variant.

ECD asset purchases| Importance High

The European Central Bank voted to increase asset purchases by €500bn across government, private and public investments in their Pandemic Emergency Purchase Programme, taking the total to €1,850bn. Additional measures are being implemented to help deal with the Coronavirus fallout as several European countries further tightened their lockdowns during December.

US Approves Covid-19 relief package| Importance High

Congress finally agreed on extending the pandemic relief measures which included sending cheques to households and unemployment benefits. This should at least provide some support for consumer confidence and spending as well as help for the unemployment rate (6.7% in November from 6.9% in October).

 

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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