The A-Z of investments in 2021

A – ANC

On 1 November South Africans took to voting stations across the country to cast their votes in the 2021 Municipal Elections. Results showed ….

B – BITCOIN

Whether you love it or hate it, crypto assets seem to be here to stay. Not only did the most well-known of them all, Bitcoin, move from levels below US$29 000/Bitcoin to over US$62 000/Bitcoin at the beginning of November, but we also witnessed the listing of the first Bitcoin-linked exchange traded fund (ETF).

C – COVID-19

At the start of 2021, we definitely hoped that by now COVID-19 would be considered a thing of the past. Yet South Africa entered 2021 in its second wave, followed by a similar third wave in the middle of the year. At the time of writing, it appeared as though SA had things under control, with only 230 new cases reported on 31 October. SA’s vaccination campaign is still moving slowly compared to other countries, with just over 12.3 million people (or only 31% of the population) having been fully vaccinated.

D – DIVERSIFICATION

In 2021 we were reminded yet again of just how important a well-diversified portfolio is. Investors have had a tumultuous ride, especially in the fields of local shares, properties and bonds. A well-diversified Multi Asset High Equity Balanced Fund (source: Profile Data), however, still would have provided you with 15.3% in returns until the end of October 2021. Even the Low Equity Balanced Funds delivered a return of approximately 10%.

E – ESKOM

Just when we thought that there was light at the end of the tunnel, load shedding was implemented by Eskom and everything around us went dark yet again. On 4 August there was an explosion at the Medupi Power Station. André de Ruyter, Eskom Chief Executive, said that this explosion could add up to R2 billion to the expansion of this Power station and that the damage could take up to two years to repair.

F – FINANCES

At the time of writing, we were still waiting for the newly appointed Minister of Finance to deliver the first Medium-term Budget Speech (11 November 2021). At this stage it appears as though tax collections may yet again exceed the February National Budget’s expectations, thanks to stronger-than-expected economic recovery and the boom in global commodity prices. Things also seem to be turning to normal following country-wide lockdown measures implemented as a result of COVID-19.

G – GOLD

Gold and other precious metals definitely had a rollercoaster year. After starting 2021 at just under US$1 900/fine ounce, the gold price dropped to around US$1 680/fine ounce in March. Currently, it’s back to US$1 800/fine ounce. While Palladium’s price fluctuations could certainly also be singled out, it was Rhodium that took first prize for the biggest price fluctuations. At the beginning of 2021 it was priced at US$17 000/fine ounce and in March it made a turn just below US$30 000. Today (1 November 2021) it’s trading all the way back at US$14 100.

H – HOUSE PRICES & PROPERTIES

House prices, along with the rest of the property market didn’t have a great year in 2021 and according to FNB, this division has only grown by 3% year-on-year until the end of September. SA Listed Properties experienced one of its worst years in 2020, but recovered nicely in 2021, having grown by 24% for the year so far (up to and including 31 October 2021).

I – INFLATION & ECONOMY

The most recent CPI figures (September 2021) shows 5% year-on-year inflation growth, which seems to follow the same upwards trend as the rest of the world. This is the first time since May 2006, however, that SA’s year-on-year inflation has come in lower than US year-on-year inflation growth. This has been taking place for the past five months in a row. From a local economic perspective, South Africa has made a decent recovery in 2021, and the IMF in its most recent forecast release (source: International Monetary Fund) has increased its growth forecasts from 3% at the beginning of this year, to 5% in October 2021. They only expect 2.2% growth for 2022, however. While we made a good recovery, it wasn’t nearly enough to generate enough jobs and as a result the unemployment rate has increased to 34.4% in the second quarter of 2021, which is the highest it’s been in 15 years.

J – JSE

The FTSE/JSE All Share Index has grown by 18% for this year up to and including 31 October 2021. Does this one swallow make a summer? When we take a look at analysts’ forecasts for individual shares listed on the FTSE/JSE All Share Index, you will see that they don’t agree. In fact, if they are 100% correct with their forecasts (according to Refinitiv Eikon consensus), they still expect 19% growth for the JSE over the next year, excluding dividends.

K – KNOW YOUR LIMITS

Money Market rates were relatively stable in 2021. After ending 2020 at a rate of 3.65%, the current 3.45% isn’t much of a change. Debt levels on the other hand are still much higher than they were 10, 20 or even 30 years ago. Debt as a percentage of disposable income has seen a slight decrease in 2021, and at its current level of 66.9%, it is somewhat lower than 2020’s 68.8%. This, together with relatively low inflation, may be the reason why the SARB may not be in too much of a hurry to increase interest rates. These low interest rates and the economy that is still under immense pressure has made a comfortable retirement in 2021 a massive concern for many South Africans.

L – LONG BONDS

Long term government bond rates (10 year plus) weren’t as stable as money market rates. It started 2021 at 8.75% and was trading at 9.64% as at the end of October 2021.

M – Markets

I already mentioned that the JSE had a better year in terms of growth, and things didn’t look too bad in the rest of the world either. The Japanese Nikkei experienced the lowest growth rate (+0.13% in rand-terms), while the FTSE 100 performed much better with 19.9% growth in Rand-terms as at 31 October 2021. The MSCI ACWI Index delivered a stellar performance with 21.3% growth in rand-terms, but the S&P500 took first place again with positive growth of 28.4% over the same period.

N – Naspers

No A-Z of South African Investments would be complete without singling out Naspers. Contrary to other years over the past decade, though, this giant has been struggling in 2021 and despite corporate action (with Prosus) earlier this year, it just cannot manage to unlock value for shareholders. Naspers has lost more than 14% of its value for the 2021 as at 31 October 2021.

O– OIL

Brent oil definitely experienced a very interesting year in 2021. In April 2020 we saw its price drop to US$16/barrel. In 2021, it started the year at US$52/barrel and as at the beginning of November 2021, it was trading at US$85/barrel. Of course, this isn’t good for inflation at all and it’s also the biggest contributing factor to the 28% fuel price increase (R13.76/litre to R17.61/litre) we’ve seen since December 2020 until the end of October 2021 (source: AA). With yet another big price hike on the cards for November, the end isn’t in sight just yet.

P – PRIME RATE

2021 was a more stable year in terms of interest rates. We started 2021 at 7% and to date this remains unchanged. Despite an increase in inflation, it seems as though we will only start to see interest rate increases towards the beginning of 2022, so be very careful of incurring too much debt.

Q – QE

The Fed’s first quantitative easing (QE) was announced in November 2008, and later followed by further QE’s. During the COVID-19 pandemic we saw especially the US printing more money, but the Fed has indicated that this process is now drawing to a close.

R – Ramaphosa

President Cyril Ramaphosa also had a rollercoaster year. 2021 served him with a range of challenges, but I still think that he had a good year and that he’s slowly but surely starting to make the changes that SA requires to grow.

S – SOUTH AFRICAN RAND

The Rand had one of its more stable years in 2021. Don’t get me wrong, it definitely wasn’t a smooth ride, but with the rand hovering between R13.50 and R15.50 to the US Dollar since the beginning of 2021, we definitely cannot complain about too much volatility in 2021.

T – TITO MBOWENI

Tito Mboweni resigned as Minister of Finance in August, a position that he had held since October 2018. With this being one of the most challenging positions in South Africa, there’s no doubt that he was an absolute rock.

U – UNREST (POLITICS IN SA)

One of the stand-out political events in July 2021 has to be the fact that South Africa saw some of the worst riots in our country’s history, which also coincided with former president Jacob Zuma’s sentencing by the Constitutional Court. Thankfully, it looks as if things are finally starting to return to normal following these widely broadcasted and horrific riots.

V – VOLATILITY

Global volatility in general has seen a decline from 2020 to 2021. The SA Top40 Volatility Index indicated a pretty volatile year in 2020, as expected, and traded at an average rate of 24%. This year has seen some improvement and it’s now trading at 19.4%. The US had a similar experience with the CBOE Volatility Index (VIX) that dropped from an average of 28.6% in 2020 to 19.1% in 2021 (to date).

W – WORLD GROWTH

I already spoke about South Africa’s economic growth and the IMF’s forecasts. When compared to the US, however, the US still performed better, with GDP growth of 6% expected for the full year (2021) and 5.2% forecasted for 2022. In Britain similar growth is expected at 6.8% for 2021 and 5% for 2022. The rest of Europe is pretty much in line with SA’s forecasts at around 5% growth expected for 2021, and 4.3% growth expected for 2022.

X – X-factor (WAR, BOMBINGS, ETC.)

The US-China relationship remains tense and a massive cause for concern.

Y – Yuan (China)

China made news headlines in 2021 for a variety of reasons, and unfortunately for them, it wasn’t always good news.

Z –ZUMA

Just as I thought that I was going to have a hard time looking for Z in this year’s report, former president Jacob Zuma had his day in court. Zuma was sentenced to 15 months in jail in June 2021 for contempt of court. He started serving his sentence on 7July 2021, but it didn’t last very long, as he was released on medical parole on 5September 2021.


Disclaimer

The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. The information in this blog is provided as general information. It does not constitute financial, tax, legal or investment advice and the PSG Konsult Group of Companies does not guarantee its suitability or potential value. Since individual needs and risk profiles differ, we suggest you consult a qualified financial adviser, if needed. PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider – FSP 728

Schalk Louw

As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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