Markets end 2020 with a rally

In the last month of 2020 markets globally continued to be encouraged by the much faster than expected development time of a vaccine against Covid-19, the US Congress finally passing a spending package of about US$900 billion, and the EU and Britain signing a post-Brexit trade deal at the eleventh hour.

Locally, Q3 GDP data was released, showing that the SA economy grew by an annualised rate of 66.1% in the third quarter of 2020, compared to an annualised figure of -51% in Q2. Year-on-year GDP declined 6%. Other good news locally was the current account recording a surplus of 5.9% of GDP in the third quarter from a deficit of 2.9% of GDP in the previous three months. As a percentage of GDP, it’s the highest surplus since 1988.

December – a strong end to the year

Following on November’s sudden growth spurt, SA equities as measured by the FTSE/JSE All Share Index (ALSI) added another 4.2%. After a stellar November for SA listed property (as measured by the SAPY) the sector gave another strong 13.7% in December. SA bonds (ALBI) gained 2.44% and cash (STeFI) returned 0.31%. On a sectoral basis, Basic Materials, Industrials and Financials returned 9.4%, 2.0% and 8.3% respectively.

The MSCI World index lost 1.1% in rand terms for the month, the negative figure mostly due to the rand strengthening 5.1% against the US dollar. (A strengthening rand is bad news for South Africans invested overseas; a weakening rand is good news.) The Bloomberg Barclays Global Aggregate Bond index returned -3.8% for the month when converted back to rand.

For the year 2020, rand weakness buoyed offshore asset returns

For the calendar year 2020, the rand weakened 5.0% against the US dollar and nearly 14.5% against the euro. The MSCI World Index gave South African investors 21.8% in rand terms and the Bloomberg Barclays Global Aggregate Bond Index returned 14.7% in rand.

The ALSI surprised with a positive 7.0% on a total return basis for the year, with Basic Materials up 21.2%, Industrials down 20.7% and Financials also down 19.7% for the year. Listed property at -34.5% is the biggest disappointment of 2020. The ALBI returned 8.7% for the year, and cash 5.4%.

Longer term, not all main indices managed to beat inflation

Over the past five years to end 2020, the ALSI returned 6.4% p.a. On a sectoral level, Basic Materials returned a positive 23.3% per year. In contrast, Industrials and Financials lost 3.2% and 1.3% per year respectively. Listed property (the SAPY) returned -8.4% annualised over the past five years. The ALBI returned an equity-like 10.43%; cash 6.97% p.a. The MSCI World Index (developed market countries) gave an 11.0% p.a. total return and the Bloomberg Barclays Global Aggregate Bond Index 3.7% in rand terms over the past five years. Inflation averaged 4.6% p.a.

Over the past 10 years to end 2020, the ALSI returned 9.6% p.a. On a sectoral level, Basic Materials, Industrials and Financials gave 4.1%, 12.4% and 8.2% per year respectively. Listed property (the SAPY) failed to beat inflation – even over a 10-year period – and returned 2.6% annualised. The ALBI returned 8.2% and cash 6.3% p.a. The MSCI World Index provided SA investors with a superb 19.0% p.a. total return over the past 10 years; the Bloomberg Barclays Global Aggregate Bond Index with 11.4% in rand terms over the same period. Investing offshore was the uncontested winning call over the past decade.