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Mid-May 2021 economic review

Gold produced a stellar performance for the month closing 5.93% higher.

Major asset classes across the board trended higher for the month as a result of positive market sentiments emanating from the slow-but-sure stabilisation of the lethal Covid-19, through vaccine rollout programmes in several parts of the world.

Roughly about 87% of the 300+ companies that reported their financial results in this current earnings season period, produced earnings above expectations. Wall Street darlings produced bumper results for the last quarter, however, this mega excitement rapidly fizzled out, with the bulk of investors expressing sentiment about whether any of the information known is tucked-in already into the displayed share prices.

With a lot of quantitative easing in several economies, inflation concerns are rapidly gaining momentum thus dampening propelled investor sentiments. Chip shortages still pose a massive production lag in several industries with automakers being the hardest hit. However, Biden’s administration has backed proposals for tax incentives to US manufacturers in making the essential parts in America to lessen future shortages.

For the period, developed market stocks (MSCI World Index) closed 4.7% higher beating their emerging market peers (MSCI Emerging market Index) which recorded gains of 2.5%. The S&P 500 Index hit record highs for the period posting a healthy 5.3% gain, which is a straight gain for the past three months. This upward spiral is largely accredited to investors taking confidence in positive economic recovery and return to profitability since the advent of the coronavirus.

Euro Stoxx 600 Index was another winner yielding an all-time high during the month posting a 4.3% gain, bringing the year-to-date return to 9.5%. FTSE/JSE stretched its winning streak to six months with a modest gain of 1% in April, the Capped SWIX lagged slightly posting a marginal 0.8% gain. Chief drivers were Financials which posted a 3.4% increase and Resources 2.9%.

Yields-centred markets found some amnesty in the month, with the Barclays Bloomberg Global Aggregate Bond Index posting its first positive month this year, 1.3% higher. Over the period Euro area yields rose higher for the month tracking the benchmark US 10-year Treasury yield which edged higher, touching its highest in nearly two weeks at 1.647% (28 April 2021).

Jerome Powell, the US Fed chair, (in the latest US Federal Reserve policy meeting) reiterated that easy money will remain for a foreseeable future. The JSE All Bond Index outweighed equities over the month, with yields drifting lower on the back of supportive external and domestic dynamics. Listed properties asset class was the best performer for the month recording a staggering 11.68% bringing its year-to-date to 18.86%, largely due to the absence of lockdown restrictions, which dampened activity for the greater part of 2020.

The Bloomberg Commodities Index closed the month 8.3% higher, which is the strongest monthly return in almost a year. This upward push is mostly due to a surge in global economic activity and relaxed lockdown Covid related restrictions. The Bloomberg Agriculture Index was up 13.4% as several developed nations return to normalcy.

Gold produced a stellar performance for the month closing 5.93% higher and silver was 11.74% up. Cooper continued to show a massive 12-month rally, closing at USD9 324.82 per tonne for the period, which is an 84.36% change from a year ago. This rally is predominately attributed to global economic recovery and growing momentum in green transitions. Oil heaped another month of gains on the back of positive economic data and a brighter outlook for fuel demand in key markets like the US, China, and the UK.

The rand breached through the R14/USD since January 2020 reaching R13.98/$ on 10 May 2021, thanks to the ongoing commodities rally. The rand customarily benefits from booming commodity prices, with raw materials claiming a third of South Africa’s exports. Notably, commodity gains are being dominantly spurred by the world economy recovering from slapped pandemic related confinements experienced the whole of last year, with China continuously powering ahead in its appetite for industrial raw materials and the US market preparing itself for the massive infrastructural investment drive.

South Africa’s trade data surprised on the upside. The trade surplus rose in February as exports charged on 16.5% month-on-month, ahead of the marginal 1.5% increase in imports for the same period, anchoring the view that global activity at ports has remained strong year to date. Retail sales emerged from the dust rising 6.9% m/m in February following straight 10-month declines. However, the manufacturing PMI fell to 56.2 in April from 57.4 of the previous months. Headline inflation in March jumped to 3.2% relative to 2.9% recorded in February, indicating consensus expectations, thus moving back within the Sarb target range of 3-6%.

The South African Revenue Service reported an additional R138 billion in tax collections ahead of its initial 2021 tax-year target. The driving force behind this success is due to domestic economic improvement and better than expected performance from the mining and financial services sectors.

A selection of how major asset classes performed for the period under review:

Total Returns as of 30 April 2021
  April YTD 1 Year 5 Years
ALSI-Equity 0,97% 14,23% 36,40% 8,04%
ALSI-Property 11,68% 18,86% 40,33% -7,37%
ALBI(Bonds) 1,90% 0,12% 14,65% 8,66%
STeFI (Cash) 0,30% 1,21% 4,34% 6,75%
MSCI World 2,82% 8,45% 14,80% 14,46%
$/ZAR 1,75% 1,23% 21,00% -0,38%
Euro/ZAR -0,63% 2,83% 13,18% -1,41%
Source: Morningstar (Total returns annualised to 30 April 2021)

 

ADVISOR PROFILE

Mauro Forlin

Global & Local Asset Management

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