Monthly Market Commentary – June 2021
Emerging markets, in general, had a difficult month which included South Africa given its high EM beta characteristics. After being one of the best performing emerging currencies this year, the rand weakened strongly boosting offshore asset class returns in ZAR terms. Local equities blew off some steam after several positive months and was the worst-performing asset class for South African investors. Somewhat surprisingly, local property continued to produce good returns, however global equity and global property eclipsed all SA asset classes as their positive returns in hard currency were boosted by the weaker rand. After significant outperformance, the resources sector fell over 6% despite the weakening rand.
June delivered generally positive economic news globally as well as good news on the whole in terms of COVID cases and vaccine rollouts. A notable exception was, however, a large uptick in cases in the UK due to the delta variant which delayed the final step of economic reopening. In the US, there were hints of sooner-than-expected interest rate rises which helped to settle longer-term inflation concerns and contributed to a pick-up in the performance of ‘Growth’ stocks, especially the larger ones, relative to ‘Value’ companies – partially reversing the trend evident earlier this year. Oil prices continued to rise, increasing 10% in June – they are now up over 50% year to date.
South Africa third wave | Importance High
South Africa is in the grips of a third wave of COVID, with Gauteng the epicenter, that forced the country into a Level 4
lockdown along with devastating economic consequences to several industries. A slow vaccine rollout and a raging delta variant has put the country at the mercy of a ruthless disease.
Self-generation power limit | Importance High
The Transnet National Ports Authority (TNPA) will become an independent subsidiary of Transnet as announced by President Ramaphosa. The move is hoped to address structural challenges in the logistics system and operational inefficiencies. The move was seen as a step in the right direction in the dire need to implement structural reforms to improve economic conditions in South Africa. The development had been delayed for over 15 years since the National Ports Act was promulgated.
SA Current account surplus| Importance High
South Africa’s current account balance widened to 5% of GDP for the first quarter of the year. The current account balance recorded its second largest surplus in monetary terms at R267 billion. It can largely be attributed to strong export performance as the mining industry benefits from high commodity prices and a global economic recovery. The country’s terms of trade also improved for the seventh consecutive quarter, indicating the longest period of consecutive quarterly increases on record.
Asset Class Total Returns – ZAR
FOMC Meeting | Importance High
At the Federal Open Market Committee meeting in June, no policy changes were announced but the committee’s projections for expected interest rates showed that the majority expect at least two interest rate rises by the end of 2023, sooner than previously indicated.
Europe vaccination accelerates | Importance High
The speed of the COVID vaccination rollout has increased across mainland Europe with most countries now having around 50-60% of their population vaccinated with at least one dose (up from 30-40% at the end of May). Restrictions continue to ease and economic data to improve.
US Economy | Importance High
Economic data out of the US were mixed this month, labour markets were a little subdued – unemployment ticked down to 5.8% in May, but only 559,000 new jobs were added in May, compared to an expectation of 650,000. Composite PMI fell back down to 63.9 in June, from a record high 68.7 in May. Base effects continue to have a strong impact on inflation, which continued to surge higher, reaching 5% in May.
China concerned about COVID variants | Importance High
Despite having one of the lowest daily COVID case rates globally, China announced a plan to keep borders closed and travel restrictions in place until at least the second half of 2022, amid fears of new COVID variants and caution ahead of the Beijing winter Olympics in 2022.
Digital currencies | Importance Medium
The US Fed is considering a digital Dollar to keep cash relevant in a cashless world, bypassing electronic payments that can be slow and costly for businesses. This corresponds with a number of other central bankers globally that are exploring or have already launched digital currencies in their countries.
Asset Class Total Returns – USD
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