Commodity prices jumped in reaction to low supply and high demand as global superpowers announced infrastructure plans and moved towards a greener economy to minimise emissions driving prices of commodities like platinum, palladium, rhodium and copper higher.
A weaker USD, higher commodity prices and SA exports all improved our terms of trade and contributed to a stronger Rand, appreciating by more than 20% to the US Dollar over the past year.
Improved local business confidence and higher than expected SA company earnings results all contributed to the global factors and resulted in an 18% improvement in the JSE All Share Equity Index for the year to date.
SA risk assets trades cheaper relative to their emerging and developed market peer group, leading to a stronger ZAR after foreigners also started to repurchase our nominal bonds in May. Our equity market is still valued 20% below its long-term average and trades at a discount of between 20-30% relative to our Emerging Market and Developed Market peer group.
Google mobility indicators also show that consumer behavior in SA is no more than 7% below pre-Covid activity levels. All these factors have contributed to our improved outlook and expectation of SA risk assets, especially relative to cash.
Some global equity markets – especially US large cap stocks – are stretched from a valuation perspective, but we see more investment opportunities in US and non-US value stocks\\sectors and have rotated our funds and portfolios accordingly. Equity markets have rallied hard; one can expect a small correction in the short-term in commodity and equity prices, but this will provide late comers with an opportunity to load up their allocations as the massive fiscal stimulus programs in developed markets could contribute to a healthy V-shaped global economic recovery, despite well-telegraphed fears of higher inflation or the risk of 3rd and 4th waves of Covid-19 infections.
Roeloff Horne
Director and Head of Portfolio Management
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