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May 2021 economic update

The rand may remain strong for quite some time and even strengthen further from here.

As we head into June, South Africa is now firmly in the grip of winter with temperatures plummeting over the last day or two. This, combined with bouts of load shedding at short notice and the threat of a third wave hanging over our heads, makes for a gloomy start to June but it was not all bad in May.

  • Supported by a multi-trillion-dollar stimulus plan and an aggressive $6 trillion budget, the US is now forecast to grow by 6,9% this year, bringing the US back to pre-crisis levels by mid-2021 and contributing 1% in growth to the global economy.
  • US inflation has increased to 4,2% year-on-year, the biggest increase since March 2008. It seems there are many opinions about whether this is a true concern or not with Bloomberg summing it up nicely with their 12 May headline: “Transitory US inflation pressures seen lasting for months”.  Transitory or not, the US consumer is literally paying the price with the sharpest increases in the prices of everything from food to children’s toys seen on the shelves.
  • More than 39 million people in the UK have received at least one dose of a coronavirus vaccine with the government aiming to vaccinate the balance of the adult population, approximately 21 million people, by the end of July.
  • As the UK relaxes lockdown restrictions, revived consumer activity has had a positive impact on the economy with retail sales rising sharply, manufacturing activity gaining some traction and an upgrade in the growth forecast for the year from 5,1% to 7,2%.
  • The European Union also saw an upgrade in growth forecasts, with GDP now expected to reach 4,2% for the year, up from 3,7% in the February forecast. Following a very slow start, it seems that the union’s vaccination program is now starting to have an effect and the expectation is that EU-wide fiscal stimulus will kick in during the second half of 2021.
  • Interestingly, the OECD calculates that the US economy will actually benefit from Covid with a stronger national income in the four years post-Covid than before. Unfortunately, the same cannot be said for most other countries. We do not have detailed information on how the OECD concluded this but have to wonder whether it is all built on a very fragile house of cards. Only time will tell.
  • Crypto enthusiasts spent most of the month in a panic with Bitcoin dropping a staggering 35% during the month and most other cryptos following suit. This does not change the fact that the price of Bitcoin is still up over 200% over the last year, but it is hard for most people to see the bigger picture when the short-term experience is so dramatic. Cryptocurrencies seem to be under fire from several governments around the world at the moment, but we find it hard to see how trade can be controlled or banned in the way that the Chinese government, for example, wants to. We expect a lot of activity in this space over the next few years.   Watch this space!
  • The rand is still defying gravity, ending the month at R13,72. That is a further 5,3% appreciation during the month! This is likely to cause distress for any investors who are already invested offshore but presents a great opportunity for anyone looking to invest globally. The rand may remain strong for quite some time and even strengthen further from here, but in the long term (three years out) there is no fundamental reason why it should not return to a gradual depreciation against major currencies.
  • One month index movements for the month:
    • JSE All Share Index: 1.53%
    • S&P 500 (US): 0.55%
    • FTSE (UK): 0.76%

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Michael Haldane

Global & Local Investment Advisors

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COMMENTS   1

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Seems to me now is a good time to get more Rands out if SA with the Rand is stronger…
And perhaps a nice broad UK ETF is a good place to go look for it.

End of comments.

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