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December economic review

The finalisation of Brexit brought cheers to the markets.

Despite this global pandemic, the year 2020 surprisingly was good for many investors based on total returns recorded by many assets classes. The fourth quarter of 2020 ended positively for most financial markets as investors shrugged off the rising second and third waves of coronavirus infections. This investor sentiment was propelled by initial rollouts of effective vaccines across large economies like US, UK, EU, Russia and China and the election of Joe Biden to White house.

Additionally, investor sentiment was amplified by the US Congress’ approval of stimulus packages in late December. This meant a $600 cheque for those earning an annual salary less than $75 000. The finalisation of Brexit, where Britain finally struck a deal with the EU after a four-year divorce, also brought cheers to the markets. Regardless of the Brexit deal concerns still linger around UK fisheries and the haulage sectors.

Brent crude oil prices per barrel dipped the most in April 2020, due to oversupply, resulting in decimated storage capacity for most nations. However, an improvement in oil prices ensued as most countries eased lockdown restrictions as the year unfolds with a 26.5% jump from the third quarter at around $52 per barrel.

MSCI All Country World Index returned 14.7% y/y, FTSE 100 for the quarter heaped 17.2% though largely in the red y/y, plummeting by 14.3% during 2020, S&P 500 gained 16.26% y/y and lastly, the Nasdaq Composite Index rose a whopping 43.7% y/y. South African equities experienced a bullish run, regardless of the tighter lockdown restrictions, with the FTSE/JSE All Share Index ending the year 7.00% up.

The rand massively appreciated by 12.3% against a weaker dollar since its highest slump in April 2020, 7.3% versus the pound sterling and 8.2% up against the euro. This appreciation dented most offshore returns. On the cryptos, Bitcoin pumped a staggering over 200% increase as of December 24 2020, due to the near possibility of currency digitalisation fast-tracked by Covid-19 infections.

Global bonds delivered 3.3% for the quarter with a peak of 9.2% return for 2020. Global property posted sizeable gains of 13.6% for the quarter, however, ended the year as the weakest asset classes with a return of -11.4%.

In the US, investors warmed up to the President-Elect Joe Biden’s cabinet pick, which in part signalled a return to Obama-era policies and a strong stance on arresting the pandemic. The Fed kept interest rates unchanged and hinted that they will keep the interest low until the economy recovers.

The US’s GDP Growth is forecasted to be -2.4% for 2020 from -3.7%, 4.2% from 4.0% in 2021 and to 3.2% to 3.0% in 2022.US unemployment is forecasted to improve to 6.7% for 2020 from 7.6%, 5% in 2021 from 5.5% and 4.2% in 2022 from 4.6%.

In South Africa, a stronger resurgence of Covid-19 infections led to an adjusted level 3 lockdown restrictions with 1 million infections and above 30 000 deaths. The government expects to start vaccinations by the end of February 2021; however, concerns surround the government roll-out programme.

SA GDP growth for Q3 was 13.5% relative to the 13.1% expected. In its November meeting, the Sarb kept the repo rate unchanged at 3.5%, signalling that additional easing is unlikely in the near term but hinted probable increases in Q3 and Q4 of 2021. The economy is projected to contract by 8% in 2020, improving to 3.5% in 2021 and 2.4% in 2022 respectively,

South Africa’s headline CPI slowed to 3.2 y/y in November from 3.3% y/y in October. Rating agency Moody’s and Fitch downgraded SA’s sovereign credit ratings to junk territory, however, this did not materially affect investors’ appetite for riskier assets.

ADVISOR PROFILE

Mauro Forlin

Global & Local Asset Management

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