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Markets continue their sprint in February

| Market Forces

In the first week of February, US GDP data was released, showing that real GDP in the US in 2020 was down 3.5% from 2019, the worst performance since 1946.

The US economy may be over the worst

But the US economy might have turned the corner. Retail sales picked up substantially from December to January, possibly driven by the $900 billion stimulus program, which included $600 billion of direct payments to individuals and unemployment insurance. Unlike the stimulus package distributed early in 2020, which were largely saved, this time recipients seemed to spend a large portion of their money. In addition, new infections dropped sharply in January, making it safer to go out again. US sales data also show a radical shift in consumer behaviour: sales at non-store retailers were up 28.7% compared to a year ago.

Power to the large digital platforms

Alphabet reported strong quarterly ad sales, buoyed by heavy digital advertising spending during the holiday shopping quarter. YouTube ad revenue jumped 46% to $6.9 billion.

In a digital stare down, Facebook blocked several news pages in Australia in retaliation for a planned law to force Facebook and Google to pay Australian publishers for news content.

A surge in copper, silver and platinum

Silver futures rose to $30.35 an ounce on the Comex, the highest since 2013. Like the buying stampede in GameStop, silver’s initial advance can be traced to Reddit’s WallStreetBets forum. Platinum surged to its highest in more than six years and copper climbed to the highest level since 2012 as global markets shifted towards ‘risk-on’. Copper rallied above $9 000 a ton and nickel topped $20 000 a ton.

The Nikkei hits 30 000

South Korean and Japanese shares led Asia higher, with the Nikkei 225 hitting 30 000 for the first time since 1990.

SA unemployment stands at 32.5%

South Africa’s unemployment rate jumped to a record high in the fourth quarter of last year. This means that 7.2 million people were unemployed, up from 30.8% in the previous three months.

There are signs of recovery, though. IHS Markit’s Purchasing Managers’ Index (PMI) rose to 50.8 in January from 50.2 in December, above the 50 level that denotes expansion for the fourth month in a row.

A quiet Budget 2021
On 24 February Minister Mboweni delivered a relatively short Budget speech with no major shock announcements, but it’s clear that South Africa’s debt to GDP ratio will continue climbing over the next few years. All investment related taxes remained unchanged. The announcement that the corporate tax rate will drop from 28% to 27% for companies with years of assessment commencing on or after 1 April 2022 was a pleasant surprise.

January hands over the baton
For the fourth month in a row, SA equities as measured by the FTSE/JSE All Share Index (ALSI) had a strong run. An enthusiastic January handed over the baton to an equally fit February, which returned 5.9% in the local equity market. SA listed property (as measured by the SAPY) is experiencing volatile times, but returned 8.6% in February. SA bonds (ALBI) gained 0.60% and cash (STeFI) returned 0.28%. On a sectoral basis, Basic Materials, Industrials and Financials returned 11.5%, 4.0% and 4.8% respectively. The MSCI World index returned 3.2% in rand terms for the month. The rand weakened by 0.6% against the US dollar in February.

Over the past 12 months, local property and financials are in the red

Over the past 12 months, the ALSI made a phenomenal comeback with a 33.2% total return for the year to 28 February. The gap between Resources and other sectors is cavernous, though. Basic Materials are up 66.2% over the past year; Industrials and Financials are up 6.2% and down 4.4% respectively. Listed property (at -15.8%) is fighting back but a return to previous highs may remain elusive for a while. The ALBI returned 8.3% for the year, and cash gave 4.8%. The rand strengthened 3.7% against the US dollar but weakened 6.4% against the euro over the 12 months to end February. The MSCI World Index gave South African investors 24.5% in rand terms. It’s the first time in a while that local equity beats the MSCI World over a rolling 12-month period.

Over five years, property is the laggard

Over the past five years to February 2021, the ALSI returned 9.2% p.a. On a sectoral level, Basic Materials returned a positive 24.3% per year. In contrast, Industrials lost 1.6% per year and Financials remained flat. As the worst performer over this period, listed property (the SAPY) returned -7.6% annualised over the past five years. Bonds, as measured by the ALBI, at 9.8% returned more than local listed equities. Cash gave 6.86% p.a. on average over the past five years. The MSCI World Index gave a 13.2% p.a. total return in rand terms over the past five years, comfortably beating all major SA asset classes. SA consumer inflation averaged 4.4% p.a.

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