May got off to a very exciting start when we heard that phase 2 of the vaccination roll-out would begin. John and Marcel [pictured] have received their 1st Pfizer vaccine and we are delighted to report neither have grown an extra limb! We are happy to hear that teachers are soon to receive their vaccines, especially as Covid-19 has made its appearance in several schools in Pietermaritzburg and the Midlands. We urge you to remain vigilant as we make our way through this 3rd wave. We continue to follow strict protocols at the office and would love to meet with you when you are comfortable to do so.
The Rand has gained nearly 30% against the US$ since the height of the pandemic and has outstripped emerging-market peers [exchange rate on 20 April 2020 was just over R19.00 and by 31 May 2021 had strengthened to R 13.81]. The rally may not be over yet! Strong commodity prices and the global search for yield should support the narrative for further gains in the coming months. Domestic fiscal metrics, though still far from healthy, are improving albeit very slowly. The Government’s crawling crackdown on corruption is fuelling some positive sentiment.The facts that: – we continue to see inflows in our local bond market from foreign investors; there is a surplus of dollars in our banking system from loans we have received from the International Monetary Fund and New Development Bank; we still maintain a healthy trade surplus through rising commodity prices – all point to the possibility of further Rand strength in the short term.
However, we remain aware that the ZAR is as vulnerable as ever and that any change in global or local economics and/or politics could send the ZAR the other way in an instant. Keep in mind that in 1994 the Dollar would have cost you around R3.00 and just 10 years ago it was just less than R7,00 so there is no fundamental reason why it should not return to a gradual depreciation against major currencies as it has over the last 3 decades.
Winter has Arrived
As we head into June, South Africa is firmly in the grip of winter with temperatures plummeting. This, combined with bouts of load shedding and the start of the 3rd wave, makes for a gloomy month ahead … but it was not all bad for the month of May. The US is now forecast to grow by 6.9% this year, bringing the US back to pre-crises levels by mid-2021 and contributing 1% growth to the global economy. Back home, the forecast from the IMF for SA’s GDP growth for the year is 3.1%.
We have seen increased consumer activity in the UK as it relaxes lockdown restrictions. This will have a positive impact on the economy with the UK growth forecast moving from 5.1% to 7.2% this year. More than 39 million people [out of 68 million] in the UK have received at least one dose of the coronavirus vaccine with the balance of the adult population likely to be done by the end of July. South Africa has only managed to vaccinate 1.4 million people of whom 481 000 are fully vaccinated while the balance wait for the 2nd Pfizer vaccine. GDP in Europe is now expected to reach 4.2% for the year, up from 3.7% in the February forecast.
Trends Change and some may require a change to your portfolio
As we have all experienced over the last year, changing trends and unexpected events cause shifts in economic activity which may well impact investment strategies. It is important that you regularly [at least once a year] review your portfolio with us to ensure the reasons and objectives for the portfolio are still valid. During these reviews, we can discuss the latest trends, any opportunities, or threats that these may produce and suggest tweaks to your strategy where appropriate. Remember, we do not hold discretionary mandates from you [we are not licensed to hold such mandates] so work with you to make changes which you need to sign off in every instance.
As mentioned in prior newsletters there has been a strong shift to “sustainable” investing and it is pleasing to note that most Fund Managers have taken on board the need to evaluate the companies they invest in. Those Fund managers who do not do so – will likely experience less rewarding performance over time.
As usual, please give us a call should you wish to meet with us – at the office or over Zoom – we are so looking forward to seeing our clients more regularly as the vaccine rollout numbers increase and we start to see the end of the 3rd [final – hopefully!] wave.