Monthly Market Commentary – September 2021

Monthly Market Commentary – September 2021

September saw the spillover of global risks into South African asset classes with local bonds selling off and the rand weakening over the month. SA bonds showed their riskiness underperforming local equities as foreign investors shunned the fixed income market. Despite a weakening rand, the global property was the worst-performing asset class and global bonds were the best performing asset class in rands. Diving deeper into the local equity market, resources significantly underperformed, falling 9% for the month with the financials sector up 2%. Small caps continued to outperform despite the riskier environment.

SA Drivers

Climate Deal | Importance – High

Envoys from some of the world’s richest nations met with South African cabinet ministers to discuss a climate deal that could channel almost $5 billion toward ending the country’s dependence on coal.


Power Generation | Importance – High

Mining companies in South Africa are considering spending as much as R40bn ($2.7bn) to construct 2,000 megawatts of power generation capacity, said Roger Baxter, chief executive officer of Minerals Council South Africa


Trade Surpluses Continue | Importance – High

South Africa recorded another large trade surplus with the total trade surplus this year coming in at a record R332bn. Year-to-date exports have risen by 41% and have been driven by low base effects and higher commodity prices.


GDP Growth | Importance – High

SA’s economy grew by 1.2% q/q, (seasonally adjusted, but non-annualised) in Q2 2021. This was driven by retail sales, communication, and transport activity, as well as mining and agricultural production. The economy is still 1.4% below its Q1 2021 levels.


SARB Holds, risks to upside | Importance – High

The SARB kept the repo rate at 3.5% following an inflation number of 4.9% but the committee highlighted upside risk to inflation and hence rates. Rates have been kept on hold for more than 15 months despite negative real rates. Inflation expectations remain anchored for now and it is likely that the SARB will try to avoid undue tightening of monetary policy, notwithstanding global pressures, increasingly pointing to a need to raise rates in the face of higher inflation.


Asset Class Total Returns – ZAR


Global Drivers

Evergrande Sparks Sell-off | Importance – High

China’s second-biggest property developer by sales, sporting outstanding debt of $300bn, caused investors to fear a Lehman-style credit event. Several debt repayments came due in September and fears of default loomed large as the company struggles with a liquidity crunch. The company eventually resolved an interest payment on a domestic bond, but its offshore bond remains uncertain. A 30-day grace period applies before default will be declared on the missed payment.


Natural Gas Supplies Fuels Concerns | Importance – High

A global shortage of natural gas supplies continued to worry markets. Surging energy prices have pushed up inflationary pressures at a time when supply bottlenecks clog the system. Fears of stagflation have surfaced in the wake of price rises and Covid risks.


Taper Time | Importance – High

The Fed signaled it will probably begin cutting bond purchases in November and the dot plot revealed the FOMC is now evenly split on whether to start tightening in 2022. Jerome Powell said ending the stimulus program by the middle of next year is “likely to be appropriate,” while adding that doesn’t mean rate increases would follow immediately.

China Power Concerns | Importance – High

Power supply disruptions caused in part by environmental controls on coal production resulted in power cuts from factories to homes in northeast China, home to 100 million people. The development illustrates the difficulties and risks of moving away from “dirty” energy sources.


US Government Shutdown | Importance – Medium

US lawmakers reached an agreement to avoid a government shutdown, extending government spending to 3 December 2021.



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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