Monthly Market Commentary – March 2021
South African Equity has continued its good run of form, posting a decent 3.5% return over the month of March. Interestingly the local equity market was largely driven by the more domestically focused and smaller market cap constituents. Following in this theme SA Listed Property provided another good month of returns (1.2%), however, the threat of a “third wave” and delayed roll-out of a vaccination program looms large. Despite uncertainty both in South Africa and abroad, the rand held its own against a strengthening US dollar, ending the month at R14.78/$ (2.3% stronger). Government bonds were not so lucky however as the benchmark 10-year yield moved from 9% to 9.5%, in line with rising global yields. South African fixed income continues to provide exceptionally attractive yields to both local and global investors in a low inflation environment.
March was a positive month for most equity markets as investors factored in a continuation of global economic recovery which is expected to be turbocharged by the passing of Joe Biden’s $1.9 trillion stimulus package. This was particularly evident in sectors and economies which had suffered more from Coronavirus, for example, cheaper ‘value’ companies (a theme that began in November last year with the announcement of successful vaccine trials and has continued this quarter). The prospects of economic recovery and higher inflation also caused global bond yields to continue rising.
Consumer Inflation and Policy Rates | Importance Medium
Amidst the ever-present currency risk and inflation feed-through the Reserve Bank voted to keep the REPO policy rate at 3.5%. The lower-than-expected inflation print provided further runway to maintain a low interest rate environment. With inflation below the target band (3-6%) concerns may turn to a lack in demand-side inflation.
Vaccine rollout delays and Government Finances | Importance High
Further vaccine approvals and indications of delivery timelines do little to clarify the government’s plan to provide broad-based vaccinations. Discovery Health released their vaccination plan which aims to administer up to 50,000 vaccines per day. National Treasury recorded a surprise trade surplus in February (released in March) as export values rose. Tax collections further bolstered the national piggybank as they beat a revised target by R38bn.
Asset Class Total Returns – ZAR
US Infrastructure Bill| Importance High
The US Congress passed a $1.9trn Aid Bill in order to further support the US economy on a road to recovery post-Covid. Hot on the heels of the Aid Bill is a proposed $2.25trn Infrastructure bill which is expected to meet greater resistance, yet potentially have significant effects on both short-term and long-term economic growth.
Chinese Tech | Importance High
As Chinese regulators continue to press ahead with regulation on the growing power of Asian tech, Emerging Markets stutter as global yields rise. The combination of these two factors poses a threat to Emerging Markets which have typically been seen to be the beneficiary of commodity and cyclical recoveries.
Fed remains dovish and supportive | Importance High
Despite rising inflation expectations, the Federal Reserve continues to hold a coordinated and supportive course. The Fed believes higher levels of inflation will remain within control, whilst economists have begun to factor in a “normalisation” of the policy rate towards the end of 2022.
Vaccine Rollouts | Importance High
The US and the UK lead the way as they rapidly roll-out the various Covid-19 vaccines. Emerging Markets in general, and Europe have done relatively poorly in this regard, leading to expectations of uneven recoveries across the global economy.
Asset Class Total Returns – USD
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