VIEW OF THE MONTH NEWSLETTERJULY 2021
Our View of the Month picture is a photo of Tatjana Schoenmaker who won South Africa’s first gold medal at the Tokyo Olympics. She won the 200m breaststroke in a world record time and came second (silver medal) in the 100m breaststroke. The 24-year-old hopes that her winning an Olympic medal will lift the morale of the country, which has been plunged into grimness in recent weeks. In her own words: “This medal means a lot to me. Especially if I can try to bring hope to our country. We are not going through the best of times at the moment. If this can give a slight bit of hope for anyone out there, to know that we can do it as South Africa, I’m happy”
Woman power to start Woman’s month!
In this month’s newsletter we cover the following topics:
1. Impacts of the riots and looting on your investments
2. More reforms announced
3. South Africa economic outlook
4. Rand forecasts
5. Oil tanks
6. Fuel prices
7. What’s new at Vista Wealth?
8. Chart of the month
9. Interesting stats for the month
10. Market stats summary
11. Financial Indicators as at 31 July 2021
In our previous newsletter we indicated there were many reforms happening in South Africa, making us positive that South Africa is transforming for the better. However, during the month of July’21, these thoughts were challenged when unrest created scenes of arguably the worst riots and mass looting since the end of apartheid. During the unrest more than 200 people lost their lives.
The insurrection or attempted coup was organized by RET factions within the ANC, off the back of the imprisonment of their leader Jacob Zuma. It was a clear attempt to overthrow the Ramaphosa faction within the ANC that is attempting to implement reforms and rebuild state institutions which were looted during the Zuma years.
In the aftermath, it was very heartening to see South Africans uniting to denounce the acts of violence and criminality. Standing together, saying “we’re better than this”, asking the detractors “is this the best you can do”. On Mandela day (18 July’21), President Ramaphosa urged people to honour Mandela’s legacy by helping to rebuild the country. People from all walks of life coming together to clean up the debris from the looting and vandalising of shopping malls and distribution centres.
The unrest left destruction costing the economy nearly R50bn and put at least 150,000 jobs at risk. The below infographic summarises the damage done:
Finance Minister Tito Mboweni subsequently revealed a R38.9 billion relief package to support the unemployed and businesses affected by the unrest. The interventions would be funded out of revenues that have come in ahead of budget (due to increased revenues linked to higher commodity prices) and by re-directing some government spending. Majority of the package will go towards reinstating a R350 per month social relief grant until the end of March’22, which will cost R26.7 billion.
Even though the relief interventions are budget neutral, the question should be asked “at what opportunity cost does it come”? In other words, this money could have been applied to create growth which would lead to the much-needed creation of jobs. Also, what message is government sending if a social relief grant is instated post a mass looting? When are the instigators going to be brought to book? The unrest also shone the spotlight on many incompetent ministers. What is the president doing about this and why not use the unfortunate events to clean house and reshuffle cabinet?
We have no doubt that you are concerned about the impact of the unrest on your investments and the outlook for South Africa. Post the unrest, many South African companies publicly confirmed their support and commitment to South Africa despite the events. Yes, in the short-term it hurts but we remain positive about the long-term future with reforms gaining momentum. We continue preaching the importance of diversification and that it is unhealthy to have too much invested in a small country at the bottom of Africa that does not even contribute 1% of the world’s GDP.
We reported in last month’s newsletter that multiple reforms are currently underway:
– Majority stake in South African Airways (SAA) to be privatised
– Private power plants with up to 100 megawatts of generating capacity allowed
During the month of July’21, President Cyril Ramaphosa announced another reform namely the “corporatisation” of the Transnet National Ports Authority (TNPA). This is the agency managing the operations and the infrastructure of the country’s naval ports. “An essential part of addressing the challenges in our ports is to create a clear separation between the roles of the infrastructure owner, which is the TNPA, and the terminal operator, which is Transnet Port Terminals,” Ramaphosa said.
The reforms will allow the TNPA to have its own independent board, and for the entity to better allocate revenue to capital expenditure in a way it has been unable to do because of complex cross-subsidising within the entity.
The reform of the ports operations will not only have a positive impact for importers and exporters alike, but will also benefit South Africans as increased efficiency and lower costs of imports and exports would mean lower prices for the consumer, and more job creation.
South Africa recorded another massive trade surplus (the amount by which exports exceeds the cost of imports) of almost R55 billion during the month of June’21. Year-to-date the trade surplus is over R200 billion. Commodity exports contributed 2/3 of the exports with precious metals, minerals and steel products dominating. As a result, National Treasury has been able to reduce the government borrowing at weekly auctions by about 20% which is great for our debt-to-GDP ratio.
We can however not only rely on our exports and trade surplus gains to improve our economy. Inevitably a country is also required to import goods and services that will assist in the production of exports.
Our Covid-19 vaccine rollout can also affect our economic trajectory. The rollout was initially constrained by procurement delays, regulatory issues, and slow weekends. But the pace has improved dramatically since the beginning of July, with more than half of all doses in the rollout’s entirety having been administered in the last four weeks alone. This is all thanks to government’s updated policy which requires sites to accept walk-ins, whether they have medical insurance or not.
South Africa’s current vaccination target is 250,000 jabs per day, ramping up to 300,000 daily when the J&J consignment arrives. 35 million South Africans are targeted for “the jab” by Christmas.
Lastly, what happens in our economy is often dependent on what happens in the rest of the world. It is specifically important that we stay abreast with what’s happening in the US:
- US Equity Markets are currently expensive and at all-time highs. All three major US markets reached record highs, with the S&P 500 reaching 4,422, Dow Jones Industrial Average – 35,144 and tech-heavy Nasdaq – 14,840
- With the US economy on a good recovery trajectory, it is expected that the US FED will start tapering asset purchases towards the end of 2021 or early 2022. It is unclear how much of this is already priced into equity markets
- Also related to the above, an US interest rate increase of 25bps is expected in quarter 1 of 2023. Even though the recent surge in inflation is seen as temporary, it could contribute to an earlier rate hike if not kept under control
Below notes relating to Investec’s exchange rate forecasts listed in the table below:
- The Rand currently averages R14.53/USD for the quarter, typically the worst quarter of the year for the domestic currency, which historically has seen strength in the first and last The Rand currently averages R14.53/USD for the quarter, typically the worst quarter of the year for the domestic currency, which historically has seen strength in the first and last quarter of the year and weakness in the middle two.
- The sell-in-May and-go-away effect which has been the driver for this typical seasonality has been muted to such an extent it has been barely noticeable. August is however the month often most afflicted by this risk-off phenomenon.
- With Q1.21 averaging R14.96/USD, and Q2.21 R14.13/USD, the seasonality of the sell-in-May and-go-away effect of the Northern summer holidays (where investors reduce risk as they take their annual large vacation break) has been eroded. For the Rand this has been due both to the particular severe strength of commodity prices in Q2.21, but also to less risk-aversion than in other years as lockdown restrictions, travel bans, fear of contracting COVID-19 and vaccine hesitancy have all weighed on traditional travel.
- Instead, the Rand took its weakening cue from the June’21 US FED meeting, moving into the R14.00/USD to R15.00/USD range on FED member expectations of a quicker US rate hike trajectory, from the R13.00/USD to R14.00/USD it was in.
- The Rand would have been substantially weaker were it not for the support it has had from still elevated metal prices (even though metal prices dipped slightly in July), causing the Rand to see less support against the FOMC impact which pushed it towards R15.00/USD
- However, August is likely to be a risky month for the domestic currency, which could see further marked volatility, while September is a month which has seen marked churn in the past. However, the Rand could still see further subsidence from current levels.
International oil prices declined slightly during the month of July’21. This after OPEC+ and its allies reached a deal to raise oil production in response to soaring prices and set a target for the end of 2022 to restoring all the output cut during the early days of the pandemic. Post the announcement, oil prices declined from it’s highs of almost USD77 to as low as USD66 in middle of July’21. It recovered towards the end of the month ending at USD73. forecasts as published prior to the unrest:
Also contributing towards the decline in Oil prices was a survey indicating China’s factory activity growth slipped sharply in July as demand contracted for the first time in more than a year, in part on higher commodity prices. The weaker results in the private survey, mostly covering export-oriented and small manufacturers, showed activity growing at the slowest pace in 17 months.
As published in our previous newsletters, we have been trading oil in both our local and foreign share portfolios. Clients are however reminded that the local Exchange Traded Notes (ETNs) have a maturity date. Clients who held the local SBAOIL ETN would have received final payment of R10.88 per ETN in their trading accounts on 21 July 2021.
Interested investors in the OIL ETN should note that a new ETN linked to Oil (SBOIL) is now available as an alternative investment option linked to the same underlying commodities as SBAOIL. SBOIL listed on 13 July 2021 at an issue price of R10.06 per note and a maturity date of 12 July 2041. The closing price as at 30 July 2021 was R10.43 per note.
The offshore portfolio (USO) continues to trade unaffected, as this is an ETF which does not have a maturity date.
Please contact Vista Wealth if you would like to invest in the new ETN.
Below returns over the last 4 months of the two Exchange Traded Products (ETPs) used to get exposure to oil:
|Performance for Apr21
|Performance for May’21
|Performance for June’21
|Performance for July’21
|-5.31% (until 12 Jul’21)
Following on from the above Oil tanks section and the increase in oil prices, all grades of fuel will increase on Wednesday 4 August’21. Increases of between 76 and 80 cents per litre for petrol, and around 47 cents per litre for diesel. Remember to fill up!
Petrol 95: increase of 80 cents per litre
Petrol 95: increase of 76 cents per litre
Diesel 0.05%: increase of 47 cents per litre
Diesel 0.005%: increase of 46 cents per litre
Illuminating Paraffin: increase of 47 cents per litre
Vista Wealth can now assist with all your Insurance needs:
Income protection – Disability / Impairment
As a truly independent financial services company, Vista Wealth is in a unique position to provide our clients with unbiased and holistic insurance cover. We tailor solutions according to our client’s insurance needs through the leading insurance providers in SA, including but not limited to:
PPS (Professional Provident Society)
Old Mutual Insure
Discovery Health and Insure
Contact Michelle Taylor for all of your insurance needs:
072 151 3458
Prior to joining Vista Wealth Insurance services, Michelle gained 6 years’ experience in risk and investment solutions at Liberty Life and 3 years’ experience in small business and relationship banking at Nedbank. She holds a B.Comm Economics and International Trade Degree.
She is a representative under supervision of Vista Wealth Management (FSP 51102) for Long-term insurance products. She is also a representative under supervision of Accredinet Financial Solutions (FSP 8933) for Short-term insurance and Medical aid services.
In line with the Investec Emerging Markets capital protected investment opportunity last month, we’re happy to share the chart below. It reflects the change in global trade and shows the internationalisation of the Chinese economy over the past 20 years:
Credit to Kim Litter from Ninety-One for the below interesting stats:
- 4 billion vaccines – administered globally in just the past seven months
- $31 trillion in global monetary & fiscal stimulus since Q1’20 COVID-19 outbreak
- Size of global debt now stands at $289 trillion = 3.6x world GDP
- 30x: S&P500 trailing P/E hit highest in 100 years in 2Q’21 (average is 15x)
- $1.1 trillion: global equity inflows YTD annualized, >3x previous record pace
- $9.1 trillion: market cap of FAAMG, greater than ’20 GDP of Germany + France + UK
The red block shows the market stats for the month of July 2021. In short, the JSE All Share Total Return index was up ↑4.2% for the month (up ↑26.8% for the last 12 months). The Resources sector was the best performing sector for the month, up a whopping ↑11.7%. The Industrial sector was up ↑0.9% for the month. The Listed Property sector was down ↓-0.6% while the Financial sector was the worst performing sector down ↓-1.4% for the month.
Global indices (NB! Returns are measured in Rand percentage points. For example, the S&P 500 was up 4.66% for the month as measured in Rands)
Currencies (NB! Positive indicates ZAR has weakened for the period, vice versa)
The information contained in this e-mail is of a general nature and is not a substitute for professional advice. We recommended that you obtain specific professional advice before you take any action. Vista Wealth Management takes all reasonable steps to ensure that the content of this e-mail is accurate and up to date, however, errors and omissions may occur. The accuracy of the information contained should therefore not be relied upon as a statement of fact.