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December 2021 market review

Crossing finish line
| Market Forces

Markets do one more robust lap in December

Inflation continues to threaten economies worldwide, with food prices climbing closer to a record high. A UN gauge of global food prices estimated a 1.2% increase in the cost of food during November. (The December figure has not yet been released.) According to the Bureau of Labor Statistics, the US inflation rate rose to 6.8% over the last year to its highest point since 1982.

In South Africa, inflation has hit its highest point since March 2017. The annual change in the consumer price index (CPI) was 5.5% in November, up from 5% in October, and driven predominantly by the rise in the cost of transport.

December brought little festive cheer to the local hospitality industry in the wake of cancellations due to SA’s unenviable placement on several countries’ “Red List”. Already in 2020, foreign arrivals dropped by 71% from 2019 to less than 5 million in 2020, according to the Tourism 2020 report released by Statistics SA. With last month’s unfortunate travel restrictions, the tourism industry lost more than R1 billion in bookings for travel between December and March 2022, according to the Bureau of Economic Research.

Markets lost no momentum in December

Despite the uncertainty around the severity of Omicron, during December the FTSE/JSE All Share Index (ALSI) gained 4.8% in total returns for the month. The local listed property index (SAPY) gave a return of 7.88%. SA bonds (ALBI) gained 2.69% during the month and cash (STeFI) returned 0.34%. The MSCI World index (developed market global equity) returned 3.86% in rand terms for the month of December. The rand strengthened 0.4% against the US dollar and weakened 0.63% against the euro.

Property the best performing SA asset class for 2021

Except for cash, all major market indices delivered exceptional returns in 2021 compared to the past few calendar years. Property was the best performing asset class for 2021, at 36.94%, compared to its 2020 return of -34.5%.  The ALSI returned 29.23% in 2021 compared to 7% in 2020. The ALBI returned 8.4% for 2021, and cash gave 3.81%. The rand weakened 8.65% against the US dollar and 0.99% against the euro in 2021. Looking towards international markets, the MSCI World Index gave South African investors 32.36% in rand terms.

Winning streak for SA resources sector

Over the past five years to December 2021, the ALSI returned 11.38% per year. That figures hides the gulf in performance between SA companies in the Basic Materials sector (22.87%) and that of Industrials (-1.76%) and Financials (2.92%) over the same period. In comparison, the world stock market – as measured by the MSCI World Index – returned 18.63% annualised in rand terms over the five years to 31 December 2021. SA bonds gave 9.05% per year and cash 6.25%. With a return of -4.35% annualised, listed SA property (the SAPY) was the worst performer.

Table 1: Total returns to 31 December 2021

December YTD 1 year 5 years
ALSI (equity) 4.80 29.23 29.23 11.38
SAPY (property) 7.88 36.94 36.94 -4.35
ALBI (bonds) 2.69 8.4 8.4 9.05
STeFI (cash) 0.34 3.81 3.81 6.25
MSCI World 3.86 32.36 32.36 18.63
$/ZAR -0.4 8.65 8.65 3.13
Euro/ZAR 0.63 0.99 0.99 4.69

Source: Morningstar | Total returns annualised to 31 December 2021

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