Monthly Market Commentary – November 2021

Monthly Market Commentary – November 2021

South African (SA) asset classes generally held up well over the month, considering the environment, with global unhedged bonds the best-performing asset class. The rand weakened sharply, driving much of the performance of offshore asset classes in ZAR. Local equities remained positive, driven by resource stocks and rand hedged industrials. The worst performing asset class was local cash, while SA bonds still offered positive returns as the yield curve flattened somewhat on the back of a rate increase by SARB.

SA Drivers

Rate Hike | Importance – High

The SARB hiked rates to 3.75% in a 3-2 decision. The last time the repo rate was adjusted was in July 2020 when they cut by 25bps. The Reserve Bank cautioned against inflation risks in the short to medium term mainly on the back of global inflation rising. October inflation came in at 5% on an annual basis.

 

Budget Speech | Importance – High

South African Finance Minister, Enoch Godongwana, delivered his first mid-term budget speech, under a challenging environment. The minister did have a few positive tailwinds with faster than expected economic growth and revenue windfall mainly from the mining industry. Importantly, the minister reiterated the need for improved fiscal discipline signaling consistency with his predecessor.

 

Omicron Variant | Importance – High

The Omicron variant, discovered by South African scientists, resulted in many countries closing their borders to Southern African countries and raising fears of further restrictions locally and abroad. The decisions of foreign leaders were slammed by the South African president as short-sighted and with massive cost to the local economy.

 

Covid Vaccines | Importance – Medium

Aspen will manufacture and sell its own branded Covid-19 vaccine in Africa, following an agreement with Johnson & Johnson. J&J is granting Aspen an intellectual property license to produce its vaccine under the new brand name “Aspenovax”

 

Municipal Elections | Importance – Medium

Municipal elections took place over the month with the ANC losing ground nationally and losing power in numerous key municipalities. Coalition talks and politicking took center stage with surprising results as parties bartered for positions.

 

Asset Class Total Returns – ZAR

 

Global Drivers

Omicron | Importance – High

A new Covid variant (Omicron) was discovered during November prompting global growth concerns and weaker equity markets. Although detail is lacking, countries were quick to react to the news by closing borders amongst other restrictive measures. The news affected market sentiment and heightened volatility

 

Chinese Tech Stocks | Importance – High

Chinese tech stocks, and more particularly assets listed as ADRs on U.S. stock markets fell heavily as news flow from China continued to pile on the pressure. Poor earnings results, regulatory uncertainty, risks around de-listing (Didi announced plans to delist) and skepticism around the VIE structure has made investors very nervous of Chinese companies listed on offshore markets.

 

Fed Chair and Tapering | Importance – High

The Federal Reserve Chairman (Jerome Powell) was reappointed for another term by President Biden and there was some interest in policymaker comments during the month about tapering QE at a faster pace from the December meeting, but with the Omicron strain emerging it will be an interesting decision to watch out for.

 

Inflation | Importance – High

The most significant data point from the US in November was the inflation figure taking another leap upwards, reaching 6.2% in October, largely driven by energy costs. Inflation across many markets has reached levels last seen in the 1990s.

 

Turkish Lira | Importance – Medium

In a showcase of how not to manage an emerging market currency, the Turkish Lira tumbled over 40% to the U.S. dollar as the Central Bank cut interest rates in the face of soaring inflation. This has not been helped by the president who has alternative views on the relationship between inflation and interest rates and who has sacked three central bank chiefs in the last two years and various other policymakers who opposed interest rate cuts.

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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