March 2021

March 2021

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A year on from the first global lockdown and related market rout, the world is still grappling with the pandemic, but is slowly on the mend. Expectations of a third wave of infections are prevalent, with a resurgence in cases already evidenced in Europe. Several countries in the region, including Poland, Germany and France, have reintroduced stricter lockdown measures. Slow vaccination rollouts and extended lockdowns threaten the economic recovery in the region and highlights the risks faced by other countries with lack of access to vaccines or slow distribution. This troubling picture stands in contrast to some of the other large economies, including the US, UK and China, who are much further along with vaccinations and are showing stronger signs of recovery.

In early March, OPEC+ members surprised markets by keeping output unchanged, despite expectations of higher future demand as economies reopen. The oil price hit a high of close to $70 a barrel but settled the month closer to $65, as the threat of slowing activity in Europe spilled over into commodity prices.


It was a volatile first quarter, with duration exposed assets in the crossfire with bond yields and earnings trending higher. The S&P 500 gained 4,4% over the month and 6,2% over the quarter. Emerging markets declined in March against a stronger US dollar and heightened volatility, as Turkey unexpectedly replaced its central bank governor. The MSCI World index gained 3,4% over the month, benefitting from strong US returns. Global bond markets lost further ground on higher bond yields. In US dollar terms, the Barclays Global Aggregate Index declined by 4,5% over the first quarter, while emerging market debt weakened by 4,7%.


Global trade and activity data continue to signal improvement in economic activity and mobility. Supply chain disruptions have been common over the last year but have increasingly been problematic as demand for goods pick up. A shortage in shipping containers has been a noteworthy pain point for exporters. The largest deficits have been experienced by Asia and Europe, which has led the cost of transporting a 40ft container on the trading routes between the regions to quadruple since the fourth quarter of 2020. New containers have also become more costly as the price of raw materials such as steel has increased. To add insult to injury, one of the world’s largest containers ships, Ever Given, ran aground in the Suez Canal, blocking a major global trade route and incidentally also the primary route for container ships moving goods between Asia and Europe. While some of these challenges will be transitory, longer delays has the potential to increase input costs, either eating into producer margins, or increasing inflation for consumers if costs are passed on. In both cases, these trends warrant close monitoring.


The OECD has now joined the ranks of entities that have lifted their economic growth forecasts to account for vaccine rollouts and greater US fiscal stimulus, now expecting global growth of 5,6% in 2021 (up from 4,2%). Their advice to governments; vaccinate fast, invest fast and support people. Global central banks have done all they can to communicate their preference to remain accommodative, especially given the uneven nature of vaccine rollouts and economic recovery to date. Bond markets are, however, already pricing a future of expansion in fiscal support, economic growth and potential for related inflation, as reflected in higher bond yields. With these two opposing forces, central banks are being forced to think carefully about ways to keep financial conditions from becoming tight, such as accelerating asset purchase programmes. The Federal Reserve, Bank of England and ECB all kept interest rates on hold in March, but emerging markets have already seen their first interest rate hike from Brazil (granted with a different inflation backdrop) as their bond yields have also risen. Time will tell whether markets will force policy makers to act, but for now, the tussle will continue to impact broader asset prices. 




The South African economy grew by 1,5% (qoq, not annualised) in the fourth quarter of 2020, exceeding market expectations. The ongoing recovery of manufacturing and trade supported on the production side, while the move to lower levels of restriction led to higher household expenditure on restaurants and other recreational activities. This confirms an economic contraction of -7,0% for 2020, compared with 2019, the biggest annual contraction since 1920. This does not capture the overall cost of the Covid-19 crisis but highlights the economic devastation of the pandemic and related restrictions. The local recovery thus far has been fragile, with setbacks of load shedding and a slow rollout of vaccinations doing little to boost confidence. It was therefore disappointing that the spectrum auction was once again delayed, following a ruling by the Pretoria High Court on the case brought by Telkom. Encouragingly, however, the announcement of the eight preferred bidders for the procurement of emergency power (2000MW) and opening of bid window five of the Renewable IPP Procurement Programme can be seen as progress on the road to energy security, even though it will not fully mitigate challenges in the near term.
The South African Reserve Bank (SARB) voted to keep interest rates unchanged at their March MPC meeting – a unanimous decision by the committee. This compares to a 3:2 vote at the previous meeting with two members in favour of a cut. This arguably signals that the next move could be an increase, but the SARB took some time to highlight that policy would remain accommodative and that more evidence would be required before acting. Money markets had been pricing in multiple 25bp hikes before year end. The Rand and local markets played defence against the headwinds of volatile and rising global bond yields. The All Bond Index declined by 2,5% in March, bringing the first quarter returns to -1,7%. Although the February inflation print came in below expectations, rising oil prices, food inflation and base effect will see inflation tick higher in the coming months. Inflation linked bonds also suffered from the global bond rout, but this was offset by the anticipated uptick in inflation, bringing returns to 0,6%.

The FTSE/JSE All Share Index gained 1,6%, bringing the first quarter return to a pleasing 13,1%. Strong quarterly performance from the resources sector (18,7%) continued to set the tone, but small cap stocks also delivered credible results with the Small Cap index up 21,2% relative to headline numbers from the Mid Cap stocks (9,4%) and the Top 40 (13,2%). The property sector gained 1,2% in March, bringing the quarterly returns to a healthy 6,4%. A year on, risk assets have all but left the pandemic behind.