Monthly Market Commentary – July 2021
South African (SA) equity was the best performing local asset class with the Resources sector masking the fall in Naspers and Prosus due to Chinese regulatory risks. However, global asset classes trumped local asset classes as the rand came under pressure and developed markets continued to grind higher. Global Property was by far the strongest performing asset class for the month. Unfortunately, this could not be replicated in the local property market as it took a breather from what has been a spectacular recovery year-to-date.
July saw a big divergence emerge between western developed markets, and Asian and emerging markets. Despite some nervousness around delta variant flare-ups, western markets advanced on the back of ongoing successful vaccine roll-outs and generally positive economic data. Japan, China and other emerging markets suffered, however, as lower total vaccination rates fuelled uncertainty in the face of renewed delta outbreaks. Regulatory crack-downs by China on US listed tech and education companies then exacerbated the emerging market falls. At the same time, global bond yields continued their march downwards, benefitting the price of longer-duration bonds and quality-growth stocks in general.
Zuma Arrest & SA Looting | Importance High
Earlier in July, the former president handed himself over to police to begin serving a 15-month sentence for contempt of court. An ignominious end to Zuma’s political career, but a proud moment for SA’s democracy. Mass looting in mainly Gauteng and Kwazulu-Natal resulted in destruction of businesses, shops and infrastructure. The very sad events not only took morale to a fresh low for South Africans but also posed significant economic cost to the country.
SA Repo rate and inflation | Importance Medium
As expected, the South African Reserve Bank kept rates on hold at 3.5%. SA’s GDP is expected to grow by 4.2% in
2021, 2.3% in 2022 and 2.4% in 2023, unchanged since the May meeting. The annual rate of inflation in SA eased to 4.9% in June 2021 from 5.2% the previous month. The reading was slightly higher than the expected 4.8%. Core inflation rose slightly to 3.2%.
Public Servants Wage Deal | Importance Medium
A public servant’s wage deal was signed for SA’s 1.3million public servants, however, the deal only gives government breathing room until September as this is when negotiations are expected to begin for the following year. The deal only covers salaries from 1 April 2021 – 31 March 2022. It includes a monthly cash allowance of R1,000 pm and a 1.5% salary increase. Treasury should be able to comfortably afford the increase as tax receipts remain high due to high profits in the resources sector.
Asset Class Total Returns – ZAR
China regulatory crackdown | Importance High
Chinese regulatory risks have resulted in a significant risk premium being priced into Chinese offshore equities sending shockwaves around the world. This regulatory squeeze began last November as regulators torpedoed the initial public offering (IPO) of Ant (Alibaba’s fintech business). Things really came to a head in early July, however, as China suspended app downloads of newly US listed Didi Chuxing (China’s ‘Uber’), citing data sharing concerns.
US Inflation | Importance High
Annual inflation rate in the US accelerated to 5.4% in June of 2021 from 5% in May, hitting a fresh high since August of 2008, and well above forecasts of 4.9%. Federal Reserve Chair Jerome Powell said it was still too soon to scale back the central bank’s aggressive support for the U.S. economy, while acknowledging that inflation has risen faster than expected.
Delta variant concerns | Importance High
Breakthrough Covid cases are causing alarm, however top health experts point to overwhelming evidence that the shots are doing exactly what they are supposed to: dramatically reducing severe illness and death.
Brexit Drags On | Importance Medium
The European Union’s refusal to renegotiate the Brexit deal governing Northern Ireland has put the bloc on a fresh collision course with the U.K., as Boris Johnson’s government warns it will suspend parts of the agreement if the EU doesn’t budge.
Asset Class Total Returns – USD
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