November 2021

November 2021

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International overview 

Covid-19 watch 

The pandemic once again dominated headlines in November. An increase in COVID-19 cases in Europe led to new lock down restrictions in several countries, the extent of which varied depending on hospitalisations. The identification of the new Omicron variant, however, solicited a more pronounced response across the world, given concerns of the near-term threat it could pose to lives, mobility, trade, and economic growth. 

Market performance (USD) 

Financial markets responded negatively to the news of the new COVID-19 variant, leaving most equity markets down over the month. Information technology was one of the few global equity sectors in the green, with the technology heavy Nasdaq 100 gaining 1,9%. A preference for safe haven assets saw the US Dollar gain 2,0% and gold rally towards month end. The S&P 500 lost 0,7% in November, weighed down further by anticipation of faster tapering or withdrawal of liquidity Emerging markets bore the brunt of the risk off sentiment and the MSCI Emerging Markets Index declined 4,1%. Despite some constructive export and domestic economic data, ongoing regulatory changes and a challenged property sector added to sizeable losses in the Chinese markets with the Hang Seng losing 7,1% over the month. With this backdrop, the MSCI World Index declined 2,2%, bringing returns over the year to 17,3%. Brent crude oil traded down circa 16,4% over the month of November, firstly when OPEC + retained their gradual production increases rather than responding to increased demand, even as the Biden administration were expected to release oil from its Strategic Petroleum Reserves, but also to concerns of the new COVID-19 variant, Omicron. Global bond markets traded under pressure for much of the month, as investors price for earlier rate hikes against inflation data that has yet to show signs of moderation. Concerns about the new variant brought about a turn, with US Treasuries and other developed market government bonds benefitting from a flight to safety, despite facing headwinds from rising bond yields for most of the month. 

Central bank watch 

The US Federal Reserve (Fed) formally announced their tapering programme which will see them buy a decreased amount of bonds every month, in essence providing less liquidity to markets than before. While this was largely expected, minutes from the November Federal Reserve Bank’s policy committee (FOMC) revealed consideration of a faster pace of tapering, implying an accelerated path to potential interest rate hikes. Inflation data has remained stubbornly high, spurred in great part by high global energy prices. As if to emphasize the potential for persistence, global inflation prints remained high in October. The Fed’s preferred measure of inflation, personal consumption expenditure (PCE) rose to 5,0% over the year, while US CPI reached its highest reading in 31 years at 6,2%. German CPI printed at 4,5% y-o-y, the highest reading since 1993 while 12-month CPI data from China doubled in October from the prior month. Current Federal Reserve Chairman, Jerome Powell was reappointed for another four-year term, interpreted by many as the more hawkish choice, but one that does provide policy continuity. 

Against expectations, the Bank of England kept interest rates unchanged, at least for now. Hungary hiked interest rates five times in a period of three weeks into December and Poland raised interest rates by 0,75% in November, more than expected by the market. The ECB has communicated a more patient and gradual approach, given fourth wave concerns and renewed restrictions, although tapering is likely to commence earlier. 

While base effects will in time tilt the direction downwards, upside risks to inflation remain – and increasingly, no policy maker wants to be behind the curve. 

Domestic overview

Market performance (ZAR) 

Support local

Local municipal elections saw historically low voter turnout, but delivered greater support for smaller, independent, and newer parties. With fewer outright majorities, the country now has more coalitions or formations in place at local government level than ever before. A vote for change, but one that will require untested levels of collaboration. In another vote for change, South Africa secured circa R130bn of concessional climate funding at the COP 26 climate summit from developed market partners to advance the country’s energy transition. 

The Medium-Term Budget Policy Statement (MTBPS) confirmed a revenue overrun of R120bn relative to Budget 2021 estimates. Alongside the restatement of GDP, this delivered much improved fiscal metrics, broadly in line with market expectations. The greatest uncertainty remains on the expenditure side, including the outcome of further public sector wage negotiations, SOE financial support and the shape of future social support measures. The improved picture and a commitment to fiscal consolidation helped local markets gain in the aftermath, although the headwinds from global bond yields erased much of this windfall by month end. The South African Reserve Bank (SARB) increased interest rates by 25bps, in a split vote of 3:2. The Monetary Policy Committee emphasised a preference for a gradual interest rate hiking cycle, but that near term inflation risks are to the upside. The All Bond Index gained by 0,7% in November, bringing the returns over the year to 5,6%. The Rand weakened by circa 4,4% against the US dollar. Despite a meaningful drawdown on new variant concerns, local equity markets bounced back with the FTSE/JSE All Share Index gaining 4,5%. Large cap counters and rand hedges outperformed with notable returns from Richemont (26,4%). The resources sector rebounded 6,8%, led by the precious metals sector (+10,2%), in part a beneficiary from deal announcements. The property sector gained 2,2% over the month. 

Several countries placed restrictions on travel to South Africa in the wake of the Omicron identification, dealing the travel, leisure, and services sectors a devastating blow. As the year draws to a close, this last month may yet bring more surprises. In the meantime, stay safe and healthy and let’s all support local where we can.