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February economic update

US markets saw another strong month, despite flat or down months for FAANG stocks.

February is always a busy month financially with most businesses back in full swing (global lockdowns permitting) after the holidays, provisional tax returns due and the annual budget speech in South Africa. This year was no different.

  • The biggest news of the month for South Africans was that we will NOT be paying higher personal income tax over the next year. This came as a relief for all of us as we were trying to figure out where Finance Minister Tito Mboweni would find the money to pay for all the losses suffered over the last year due to Covid-19. SA’s finances were in a very precarious position a year ago before the pandemic and we feel that he did very well with very little…even if smokers and beer lovers won’t necessarily agree with us.
  • He also managed to commit to a reduction in corporate taxes, even if it is only for years of assessment commencing from 1 April 2022 onwards. This is a small move in the right direction to make SA a more competitive environment for investors.
  • While there is hope yet for the long term, our medium-term statistics looked quite miserable with GDP expected to taper off from 3.3% in 2021 down to only 1.6% in 2023.
  • We can expect to keep seeing budget deficits until 2024/25 before returning to a surplus, which is not great news at all, but we were happy to see a commitment to fiscal discipline from the minister of finance.
  • US markets saw another strong month, despite flat or down months for the darling FAANGs (Facebook, Amazon, Apple, Netflix and Google). Only Alphabet (Google) managed to eke out a small gain for the month. We remain concerned about the strong run that not only technology shares, but stock markets, in general, have enjoyed over the last few years and would not be surprised to see a correction in the near future.
  • With the US yield curve starting to rise, economists are already warning the US government that it needs to start worrying about the consequences of the massive stimulus packages it has released into the economy and that inflation is just around the corner. The average man on the street may find it hard to believe that inflation (usually a result of strong economic growth) is imminent but remember that stock markets are forward-looking and this may be one more red flag warning us that the endless rise in US markets cannot continue.
  • Elon Musk announced that Tesla shareholders are now the proud owners of $1.5 billion worth of Bitcoin. This was published in an SEC filing on February 8 when Bitcoin was trading at $46 440 and to no one’s surprise, the price of the cryptocurrency soared to close to $59 000, just to return roughly to where it started, currently trading around $48 416. Love him or hate him, no one can accuse Mr Musk of not going all-in when he believes in something!
  • By the end of February, the UK had vaccinated over 20 million of its citizens, translating into a massive drop in daily cases from the lower 60 000s per day in January to well below 10 000 per day over the last week. Combine this with relatively strong economic data during the month and is it no surprise that the pound has reached its strongest level against the dollar in three years. The UK stock market has not quite followed suit yet, possibly held back by concerns over the slow release from very strict lockdown regulations.
  • Lead by resources (up 11.3% for the month), all eight indices in our local stock market enjoyed positive returns in February, with our local technology sector seeing an 8.4% return. It seems that emerging markets are back with a bang and South Africa is not being left behind. Long may it last for local investors who have had to be patient with a market that had gone sideways for far too long!
  • The rand ended the month 10c stronger at R15.05 – another confirmation that the budget was well received both locally and by foreign investors.
  • One-month index movements:
    • JSE All Share Index: 5.8%
    • S&P 500 (US): 2.6%
    • FTSE (UK): 1.9%

ADVISOR PROFILE

Michael Haldane

Global & Local Investment Advisors

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