Monthly Market Commentary – September 2020


Returns across all rand denominated asset classes, bar SA Cash & Stable Income, were negative in September. Global risk assets (Equity & Property) fared the worst losing -4.7% and -4.4% respectively. The rand strengthened against the US dollar from R16.94 to R16.73 by the end of the month, but this hides the true picture as intra-month the rand reached a level of R16.13. Q3 2020 Asset class returns were pleasingly positive, but SA property faced yet another tough quarter losing -15.6%.  The SA 10-year yield remained stubbornly high at just under 9.5% whilst the repo rate was held at a generational low of 3.5%. The recent market exuberance appeared to stall in September. This was led initially by US technology firms having a ‘valuation sense check’, perhaps to-be-expected given how stretched the valuations of those companies had become (and arguably, remain). Second waves of Covid-19 in Europe and some emerging market countries, and a lack of progress in controlling the virus in the US, contributed to a minor sell-off in more cyclical sectors later in the month. Political concerns are also on the near-term horizon with the US election only a month away and Brexit uncertainty weighing on UK assets.

SA Drivers

Q2 GDP Slump | Importancy High

South Africa technically entered its longest recession since 1992. Q2 2020 was the 4th consecutive quarter of GDP decline and the direst given the impact of the Covid-19 lockdown on the economy. GDP contracted 51% Q-o-Q annualised, in real terms our GDP is now lower than it was in the 2008 Global Financial Crisis.

Lockdown levels relax | Importancy Low

SA was moved to Covid-19 alert level 1 midway through the month, which broadly benefitted the leisure, restaurant and tourism industry. Restrictions on gatherings were relaxed to 50% capacity, with caps on indoor and outdoor venues being set at 250 and 500 people respectively. International travel is now permitted from select countries, through select ports of entry subject to negative test results or self-imposed quarantine.

Repo rate held| Importancy Medium

The repo rate was held at 3.5%. Initial expectations were for a further 25 basis point cut given the severity of Q2’s GDP contraction, however the MPC maintains it preempted this with its early rate cuts in the first half of the year. The high profile “Zondo” arrests of Edwin Sodi, Tim Mokhesi and several other government officials helped lift local sentiment surrounding the clampdown on corruption.

Spurious Unemployment Figures | Importancy High

Official Stats SA data suggest unemployment reduced from 30% to 23.3%, in September. This data is extremely misleading as technical definitions have classified people who could not work during lockdown as not being economically active and therefore not part of the labour force.


Asset Class Total Returns – ZAR


Global Drivers

US Electioneering | Importancy Medium

The build up to the US election is in full swing, with Biden seemingly having a comfortable, but not insurmountable lead. The first presidential debate was an uncivilized farce, which did little to influence polling or spook markets.

Central Banks sit Tight | Importancy High

The US Fed pledged to hold rates lower for longer and the US government failed to approve a new Covid-19 stimulus package, leaving many Americans uncertain of their financial future. The central Banks of Japan and England left their rates unchanged despite each countries prospects of GDP growth, unemployment, and low inflation. The Bank of England indicated rates may be cut to zero.

Europe’s Second Wave | 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.

Bungling Brexit | Importancy Medium

Boris Johnson re-tabled the UK & Northern Ireland’s post-Brexit Terms of Trade with British Parliament. The EU sees this as a breach of international law, and they are seeking legal action. The terms of trade were agreed when the withdrawal agreement was drafted. Johnson’s focus is clearly split between dealing with Covid-19 and negotiating Brexit, all while appeasing his party.

Tokyo Stock Exchange Outage | Importancy Low

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.


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