2020 will be remembered as one of the more remarkable years in history, with financial markets being no exception. Global equities delivered 21.75% over 2020, ending the turbulent year on a high – with a conclusive outcome to the US Elections in November, the announcement of multiple COVID-19 vaccines, a last minute Brexit agreement and US stimulus all adding to the bullish sentiment. Back at home, SA equities achieved a surprising 7.00% – but one must consider that they were down more than 30% at one stage in March. The sector hardest hit by COVID-19 was property, while bonds proved to be a safe investment in turbulent times. Broadly commodities recorded impressive gains – leading to resources being the top performing sector over the year. This was echoed by renewable energy advocate Montauk Holdings and gold producer DRD Gold being amongst SA’s top performing shares in 2020. The financial sector was hardest hit, largely due to the uncertainty of people and companies being able to repay their debt – a direct result of the varying levels of lockdown instigated by the Government.
Even with the stimulus of a total 3.00% cut to the repo rate inflation was contained, closing out the year at 3.2% (down from 3.6% in 2019).
The Rand ended the year remarkably stable, having had a very rocky path during the year – depreciating 5.0% against the US Dollar and 8.2% against Sterling.
Undoubtedly the most upsetting figure is the SA GDP growth forecast for 2020 of -8.0%. We are not alone in our pain though, with data from the IMF projecting that most countries will achieve less than 0.0% growth in 2020. Looking ahead at 2021, analysts are optimistic about the roll-out of the vaccine and a recovery in the global economy. This should be positive for equities, while inflation is expected to start rising putting pressure on bond yields. This should be negative for bonds. We expect global bond yields to start rising gradually as the world economy recovers over the next few years. The running yield of 3.7% on cash (SteFI) is unattractive bearing in mind our view on the expectation of inflation rising.
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