In this economic review, we focus on events that moved the market in Q1 2021. This quarter marked one year since the start of the global COVID-19 pandemic lockdown precautions and we start to get a sense that there is light at the end of the tunnel.
Despite the onset of a further wave of COVID-19 infections and renewed economic lockdowns, there appeared to be a growing sense of optimism among investors in Q1 – supported by the distribution of vaccines and economic stimulus packages in countries like the United States.
However, even though countries started to recover and open up, progress of the Global GDP is set to slow with output falling short of potential. After an estimated contraction of –3.3 percent in 2020, the global economy is projected to grow at 6 percent in 2021.
The Global economic confidence index has shown that there will be an increase in 2021. The stock markets have reacted favourably and all global indices are up; for example, The MSCI Global Equity index rose by +5.2% (in USD). Bond yields rose markedly in Q1 amid swift continued rollout of Covid-19 vaccinations, particularly in the US and UK.
Investors have favoured stocks that would benefit from the improving macroeconomic trends, and (although interest rates remain low) rising interest rates have also pushed investors into investments offering more certainty.
Moreover, consumers have built up their savings as they have largely stayed home, with Bloomberg estimating it at US$2.9 trillion worldwide. If this pent-up demand is unleashed as expected, it could provide a significant boost to the global economy.
The first quarter of 2021 saw equity market strength and bond market weakness. While equity markets continued to climb – reaching all-time highs in some cases across the globe – movements in global fixed income markets were slightly more concerning, as yields moved higher (moving prices lower) and as global bonds ended the first quarter with their worst return in decades.
On the local front, even though South Africa has no clear exit from the pandemic as the vaccine rollout is expected to be slow, the Rand finished as one of the best performing currencies at the end of Q1.
The local economy grew by an annualized 4.6% in the first quarter of 2021, following a downwardly revised 5.8% advance in the October-December period and easily beating market expectations of a 2.5% rise.
The country’s annual inflation rate rose to 4.4% in April of 2021 from 3.2% in March, slightly above market expectations of 4.3% and moving closer to the 4.5% midpoint of the South African Reserve Bank’s target range of 3-6% (the highest inflation rate since February of 2020).
The Consumer Confidence Index for South Africa edged up to -9 in the first quarter of 2021 from -12 in the last three months of 2020, bringing confidence to levels not seen in a year, before the country entered its first strict coronavirus nationwide lockdown.
Luckily, interest rates were kept on hold at 3.5% after Finance Minister Tito Mboweni delivered a reasonable budget speech in line with market expectations.
The local equity market reached an all-time high in the quarter, largely driven by strong performance from commodity counters, with the SA equity index delivering a staggering 54% return for the 1-year period ending on the 31st of March 2021!
The local bond market ended the quarter in negative territory. This, despite positive news on lower-than-expected inflation, a reduction in government bond auctions, a lower-than-expected budget deficit and a stronger rand.
I encourage you to follow a “Goal-based” investment approach. The purpose of this approach is to ensure that you are invested in the right investment vehicles and funds for your different goals.
A Practical Example of an investment portfolio:
- Emergency Fund: R 20 000 lumpsum investment through an Unit Trust in a Money Market Fund
- Tertiary Education for children: R 1 000pm investment through an Endowment in a Balanced Fund
- Capital Growth: R 50 000 lumpsum investment through a Sinking Fund in an Offshore Fund with a Guarantee.
- Retirement: R 2 000pm investment through a Retirement Annuity in a Moderate/Moderate-Aggressive Wrap Fund.
It is not wise to make investment decisions based on the latest economic review. If you want to avoid unnecessary risk and rash decisions, create an appropriate investment strategy.
Steps to creating an investment strategy:
- Determine your investment need
- Choose an appropriate investment vehicle
- Determine your risk profile and required return
- Choose a fund that will provide you with the best chance of achieving your investment goal.
At TVC Wealth & Health Managers, we specialise in independent financial advice for all financial needs.
This enables us to provide the best solutions and look at your entire financial portfolio.
Before investing for capital growth, ensure you have the following in place:
- Medical Aid & Gap Cover
- Sufficient Risk Cover (Life, Disability & Severe Illness Insurance)
- Sufficient Short Term Insurance (House, Household Content, All Risk & Car)
- Emergency Fund (3-6 months’ salary in a low-risk fund)
- Tax-Free Investment (R 36 000 per annum)
If you still need to address any of these financial needs, let’s set up a virtual meeting to address these needs.
Contact us to set up a meeting.
Disclosure: This article is posted to inform readers and not provide financial advice.