September 2021 market overview

Evergrande weighs on Chinese and SA markets in September

 Chinese shares took a dip during September as China’s second largest property developer, Evergrande, stared down the barrel of the debt repayment gun – all while finding itself in the middle of a liquidity crisis and with a debt burden of $300 billion. Evergrande’s share price is down in excess of 80% this year. The JSE too experienced a concurrent sell-off due to the established correlations between emerging country equity markets, as well as the fears of potential contagion and the potential effects on commodity prices and our resources sector.

Still, major global equity markets recouped most of their September losses after investors shrugged off the uncertainty around Evergrande and as the improving Covid-19 outlook increases the appetite for risk assets. Hospitalisations and deaths remain relatively subdued compared to previous waves in Europe and the UK.

SA tourism remains on the red list

Locally, the pandemic continues to take its toll. The revenue side of the SA fiscus will be affected by the ongoing slump in the local tourist industry, initially caused by a prolonged lockdown of the hospitality industry, and now exacerbated as SA remains on the so-called travelling ‘red list’ of countries like the UK. South Africa’s tourism sector lost an estimated R164 billion in spending by domestic and inbound visitors to the country in 2020 because of the Covid-19 pandemic.

The Bureau for Economic Research (BER) at the University of Stellenbosch revealed that the number of jobs supported by South Africa’s tourism industry declined by 960 000 to 640 000 in 2020 from 1.6 million in 2018 as spending by domestic and inbound visitors slumped to R109 billion in 2020 from R273 billion in 2018.

One interest rate hike on cards for SA

Data released during September showed that the SA economy grew by 1.2% during the second quarter. Despite this, after surging by 15 points to 50 in the second quarter, the RMB/BER Business Confidence index (BCI) retreated to 43 in the third quarter in the after-shock of the July lootings. The country’s current account surplus remains large, at 5.6% of GDP, reflecting high prices for mining and agricultural exports. During its September meeting, the Monetary Policy Committee kept the repo rate at 3.5%, but its Quarterly Projection Model still indicates an increase of 25 basis points in the fourth quarter of 2021 and further increases in each quarter of 2022 and 2023.

Shoprite proves itself a dividend diamond

At a share level, Shoprite, one of South Africa’s biggest employers, continues its success story. The retailer reported record sales of R168 billion in the financial year ending in June 2021. The supermarket chain declared a record dividend of 544% per share.

Resources retreated during September

During September the Resources sector pulled back sharply, causing the FTSE/JSE All Share Index (ALSI) to lose 3.14% in total returns for the month. The local listed property index (SAPY) also had a negative month with a return of -0.78%. SA bonds (ALBI) lost 2.12% during the month and cash (STeFI) returned 0.31%. The MSCI World index (developed market global equity) returned -0.31% in rand terms for the month of September. The rand weakened 4.01% against the US dollar and 2.12% against the euro.

Don’t be fooled by property’s one-year return

Last year this time, most markets were still down from their previous highs. From that low base most indices show strong returns over the past one-year period.  The ALSI returned 23.19% for the year to end September. Listed property recovered by an incredible 54.43% from last year. But its two-year return of -8.74% per year on average shows just how devastating 2020 was for the listed property industry and it could take a while to fully recover these losses. The ALBI returned 12.46% for the year, and cash gave 3.80%. The rand strengthened 9.80% against the US dollar and 10.86% against the euro over the 12 months to end September. Looking towards international markets, the MSCI World Index gave South African investors 16.19% in rand terms.

Over five years, global equity takes the lead

Over the past five years to September 2021, the ALSI returned 7.83% per year. Bonds, at 8.51%, returned more than local listed equities over the past five years. Listed property (the SAPY) was the worst performer over the past five years and returned -5.64% annualised. Cash gave 6.43% p.a. on average over the past five years. Global equity took the lead over the past five years with the MSCI World Index (developed market equities) returning 15.84% annualised in rand terms over the five years to 30 September 2021.

Table 1: Total returns to 30 September 2021

Source: Morningstar | Total returns annualised to 30 September 2021