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October 2021 market review

| Market Forces

October market review – strong US results send markets to new highs

In the US, earnings season begins in October every year. This year company results surprised on the upside with the majority of companies beating earnings estimates. As a result, many stock markets hit new highs. The S&P 500 (8.1%) and the Nasdaq (9.0%) indices, for example, had their best month in a year.

Still, supply chain disruption is creating choppy waters for large global companies and the issue was mentioned by top executives 412% more in this year’s reporting season than in last year’s earnings reports, according to a Bank of America survey.

The other hot topic at the moment is rising global inflation. While the Fed sticks to its view that it’s transitory, data released in October showed the personal consumption expenditures price index in the US rising to 4.4% (annualised) versus 4.2% in the previous month, continuing an inflation acceleration not seen in 30 years.

In South Africa, the annual inflation rate has climbed to 5%. Forward-rate agreements are now fully pricing in a 25 basis-point hike and a strong chance of it even being 50 points at the next meeting of the Reserve Bank’s monetary policy committee in November.

A strong month for SA and world stock markets

During October the FTSE/JSE All Share Index (ALSI) gained 5.15% in total returns for the month. The local listed property index (SAPY) had a negative month, though, with a return of -1.69%. SA bonds (ALBI) lost 0.48% during the month and cash (STeFI) returned 0.32%. The MSCI World index (developed market global equity) returned 6.75% in rand terms for the month of October. The rand weakened 1.03% against the US dollar and 0.88% against the euro.

Property is clawing its way out of last year’s pit

From that low base most indices show strong returns over the past one-year period.  The ALSI returned 35.96% for the year to end October. Listed property recovered by 65.93% from last year. But its three-year return of -6.77% per year on average shows just how devastating 2020 was for the listed property industry and it could take a while to fully recover these losses. The ALBI returned 10.93% for the year, and cash gave 3.78%. The rand strengthened 6.45% against the US dollar and 7.06% against the euro over the 12 months to end October. Looking towards international markets, the MSCI World Index gave South African investors 31.36% in rand terms.

The world stock market is the long-term leader

Over the past five years to October 2021, the ALSI returned 9.47% per year and SA bonds 8.27% per year. With a return of -6.05% annualised, listed SA property (the SAPY) was the worst performer. Cash gave 6.37% p.a. on average over the past five years. The world stock market – specifically the developed markets – took the lead over the past five years with the MSCI World Index returning 18.26% annualised in rand terms over the five years to 31 October 2021.

Table 1: Total returns to 31 October 2021

October YTD 1 year 5 years
ALSI (equity) 5.15 18.03 35.96 9.47
SAPY (property) -1.69 24.25 65.93 -6.05
ALBI (bonds) -0.48 4.87 10.93 8.27
STeFI (cash) 0.32 3.14 3.78 6.37
MSCI World 6.75 23.60 31.36 18.26
$/ZAR 1.03 3.48 -6.45 2.43
Euro/ZAR 0.88 -2.13 -7.06 3.56

Source: Morningstar | Total returns annualised to 31 October 2021

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