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MONTHLY UPDATE

March 2021

Financial markets continue to look forward to the second half of 2021 with an expected strong economic recovery as the world emerges from the Covid-19 pandemic.

With this backdrop in mind, some key market takeaways include:

• There is still significant fiscal and monetary support being offered to the major economies of the world;
• Investors have been encouraged by the successful roll out of vaccine programs in select countries in recent months;
• However, the rollout of vaccines (and access) has been unequal across the globe creating a “K shaped” recovery;
• The bullish sentiment around economic growth has been further boosted by significant fiscal stimulus from the new Biden administration ($1.9trn stimulus package passed and a further $2.25trn longer term infrastructure program proposed);
• This positive backdrop needs to be measured against extended asset class valuations;
• Whilst central banks including the Fed’s “language” to financial markets has remained accommodative investors are pricing in higher inflation expectations – this is best reflected in U.S. Treasury yields;
• As a result of higher growth expectations (and inflation), an important theme prevalent in markets at the moment is the reflationary trade and with it, the switch from growth orientated stocks to value stocks;
• Strengthening U.S. Treasury yields may also limit recent weakness in the U.S. Dollar. This in turn could be a headwind for emerging markets;
• The current market environment is likely to see a greater dispersion in returns across markets and asset classes requiring investors to focus on fundamentals; and
• Therefore we are advocating a measured approach across all our investment strategies with a constructive view on risk assets.

Locally, stronger commodity prices continue to support the balance of trade account (also positive for tax collections), helping the Rand to strengthen. This coupled with attractive real yields has seen foreign investors re-enter the local market.  Headwinds remain, a very “slow” vaccine roll-out, Eskom challenges as well as continued infighting within the ruling party, although much progress has been made in President Ramaphosa’s drive to route out corruption in SA.