December 2020
Share markets, exchange rates, commodities, international developments, domestic economic indicators
International markets performed strongly in December, ending the year in positive territory – something that seemed unlikely in March.
December’s performance was primarily influenced by a Brexit trade deal, the approval of more Covid-vaccines, a good chance of a further stimulus package in the USA and the ECB injecting more liquidity into markets.
However, international markets performed differently compared to South African markets in 2020.
In South Africa, bonds outperformed shares. The JSE ALSI was up 4.1% for the year, while the All Bond Index (ALBI) gained 8.7%.
Internationally, the situation was the other way around – the MSCI World Equities Index was up 14.3%, while the WGBI gained between 8% and 9%.
However, there was divergence in the performances of international share markets.
For instance, the S&P was up 16.3% for the year, while the FTSE was down 14.2%. The Nikkei in Japan and Shanghai in China increased by 16.0% and 13.9% respectively, but the French CaC was down 7.1% and the Hang Seng in Hong Kong 3.4%.
Commodity prices increased strongly in December. Gold was up 6.1% to register a yearly gain of 24.8% in US$-terms. Likewise, platinum increased by 8.9% with a yearly gain of 11.3%, while Brent oil gained another 8.2% in December, but was still 23.6% lower than at the end of December 2019.
As for currencies, the US$-index ended 2020 6.9% lower compared to the end of 2019.
The rand, however, still ended the year 4.5% weaker than the US$ (despite a 5.1% gain in December).
Respectively, the euro and yen ended 2020 some 8.2% and 5.2% stronger against the US$.
2021 will bring its own challenges, with the vaccine and its administration still top of mind.
A number of questions remain, though. Will the take-up be high? What if the expiry of the vaccines is faster than the rate of administration? Will the vaccine have short-, medium- and long-term effects on people’s health? Will there be a third wave and more lockdowns for countries who don’t get the vaccines fast enough? And so on!
These uncertainties will hamper economic performances and may require more stimulus in 2021.
South Africa is unfortunately not in a position to provide fiscal stimulus - and the economic recovery will be hampered by the adjusted level 3 lockdown – and the probability of more severe lockdowns.
Given that the first batch of vaccines may only arrive in Q2 2021 and question marks on whether the government’s intended administration process will run smoothly (it wants 67% of the population to be vaccinated in 2021), economic growth expectations will probably be adjusted downward. Nevertheless, shares, at this stage, is likely to outperform bonds in 2021 as most earnings are generated abroad where recovery is deemed to happen faster.
Courtesy: Multivest Economic Division
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