December 2021

December 2021

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November 2021

International overview 

The season

Countries continue to adjust to the increase in COVID-19 cases as the Omicron variant spread to become the dominant variant in several countries. While financial markets initially responded negatively to the rapid spread of the variant, risk appetite returned as incoming data suggested the Omicron variant could be more transmissible than previous variants but cause less severe disease. Restrictions on movement, as well as travel bans on certain countries, nonetheless put a dampener on service sector activity over the holiday period. 



Global equity markets ended the year reaching new highs, despite lower liquidity over the festive season and lingering concerns around the rising case counts of Omicron infections. The MSCI World Index gained 4,3% in December and 7,9% over the last quarter, to bring the returns for 2021 to 22,3%. With its significant representation in the global index, strong US returns was a one of the primary drivers. The S&P 500 returned 4,5% in December and +28,7%% over the last 12 months. Although value sectors remained in favour for much of the year, the technology heavy Nasdaq 100, which is largely comprised of growth stocks, still gained 27,5% over the year. Emerging markets staged a modest recovery in December, with the MSCI Emerging Markets Index gaining 1,9%. This was, however, not enough to change the fourth quarter (-1,2%) and 2021 figures (-2,2%) positive. A meaningful contributor was sizeable losses in the Chinese markets, especially from big technology companies, as ongoing regulatory changes and a challenged and highly leveraged property sector saw the Hang Seng losing 12,3% over the year. Weaker growth from China and lower demand for certain commodities impacted several other emerging markets. 

The energy markets were arguably the biggest beneficiary this year. Brent crude oil settled close to $78 ahead of the OPEC+ meeting in early January, up about 50,2% over the year – and a far cry from the pandemic-stricken lows. Gas prices repeatedly hit new highs over the latter half of the year, while the price moves from the energy crisis also extended to coal prices. 

Global sovereign bond markets traded under pressure for much of the year, as bond yields rose alongside concerns of inflationary pressures and by inference higher probability of earlier interest rate hikes. The US 10-year bond yield rose circa 60bps to 1,5% by year end. Corporate credit instruments, especially those in the High Yield space, benefitted from a search for yield and improved earnings outlook. In US dollar terms, the Barclays Global Aggregate Index declined by 4,7% over the year. 

Ushering in a new phase 

If one considers the change in forecasts and market expectations, economic growth for 2021 was better than expected, despite the ongoing travails and impact of the pandemic. In lockstep, however, increased demand, supply chain challenges and developments in the housing and labour market led to inflation also surprising to the upside. The main challenge for policy makers and investors this year will be to ascertain how much of these pressures will persist for longer and at what pace policy makers need to tighten to combat sustained price increases. While many central banks have already started to reduce monetary stimulus, some are now accelerating the withdrawal. In December, the US Federal Reserve (Fed) accelerated the pace of tapering of bond purchases, to end in March 2022, and signalled earlier interest rate hikes. The Bank of England hiked interest rates by 25bps for the first time since the pandemic. The ECB, however, seems to be content to continue with a more patient and gradual approach overall, continuing with asset purchases for another 10 months and proposing no interest rate hikes for 2022, despite scaling back on bond purchases. While the direction is clear, the pace and scale of policy actions will likely be a major source of market volatility and surprise this year. Time will tell whether the assertiveness of central bankers will also be the catalyst to stymie the asset price inflation that markets have been enjoying. 

Domestic overview 



Fourth wave

A rapid escalation of COVID-19 cases confirmed the onset of the fourth wave, though the country resisted stricter lockdown measures. With data indicating a moderation of case counts in the latter half of the month, South Africa further relaxed restrictions on movement and trade, including a removal of the curfew. 

The Independent Communications Authority of South Africa (Icasa) reissued the invitation to apply for spectrum in an auction of about R8bn, planned for March 2022. After numerous delays, the conclusion of this process would be a positive development for the economy, fiscus and consumers. In a positive development, credit ratings agency Fitch moved South Africa’s credit ratings outlook to stable from negative. 

The economy recorded a quarterly GDP contraction of 1,5% (not annualised) in the third quarter, disappointing relative to market expectations. The devastating impact of the riots, as well as load shedding, were the primary drivers. The unemployment rate recorded a new high of 34,9% in the third quarter, confirming the bleak picture many job seekers face. 

Both Nedbank and Investec concluded the purchase of their outstanding listed preference shares in December, driving the preference share market to a strong end to the year, gaining 6,5% December. This brings the full year returns to 45,0%. The All Bond Index gained 2,7% in December, bringing the returns over the year to 8,4%. After a strong start to the year, the Rand experienced a much weaker fourth quarter, depreciating by circa 6,0% and breaching the R16,0-mark multiple times in the last month of the year. 

Local equity markets mirrored positive momentum from global equity markets with the FTSE/JSE All Share Index gaining 4,8%. With resources delivering performance of 32,4% over the year, South African equity indices outperformed the broader emerging market complex, delivering returns comparable to many developed markets. 

In December, domestically exposed small and mid-cap counters outperformed large cap counterparts, while interest rate sensitive sectors such as the property and financials finished the month up 7,9% and 9,1% respectively. The standout sector for 2021, however, was the energy sector, returning 112,2%.