South African Market Commentary South African equities tracked global markets lower during the month, as poor performance from Resource counters and large Industrial index constituents weighed on the performance of the local equity index. Local bonds had a tough month, ending lower, as global risk aversion and expectations of the tapering of asset purchases in the US lead to higher yields (and lower prices) on SA bonds. Local listed property ended the month slightly in the red, as the sector continues its slow recovery from rental relief provided as a result of Covid-19, with many counters prioritising balance sheet improvement, resulting in lower-than-average distribution payments. The rand was weaker against most of the major developed market currencies, as global risk aversion and a stronger US dollar acted as headwind to the performance of emerging market currencies. South Africa moved to an adjusted level 1 lockdown on 1 October, as Covid-19 infections continued to decline across the country, which allowed President Cyril Ramaphosa to lift restrictions slightly. The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) announced that interest rates will remain on hold at its meeting in September, which was largely expected, despite the SARB assessing the risks to the short-term inflation outlook to be to the upside. In terms of the GDP growth outlook, the SARB announced that they expect growth for 2021 to be significantly higher at 5.3%, largely due to the stronger Q1 and Q2 GDP prints as well as the impact of historical revisions. What is of more concern, however, is the downward revision of expected GDP growth for 2022 (to 1.7% from 2.3%) and 2023 (to 1.8% from 2.4%), which is indicative of the fragile state of the SA economy. SA headline CPI moved higher to 4.9% year-on-year for August (from 4.6% in July), as rising transport and food prices made up the largest components of the inflation increase during the month, the former affected by the 91c per litre petrol price hike during August Global Market Summary Global equity markets performed poorly in September, as slowing global growth, concerns around the spread of the Covid-19 Delta variant and liquidity concerns at China’s second largest property developer, Evergrande, dampened risk appetite. Evergrande indicated during the month that the company has cash flow problems, with reports surfacing that it is at risk of defaulting on money borrowed from China’s shadow banking system. This comes on the back of increased regulatory scrutiny in China from the ruling Chinese Communist Party, with the recent issues at Evergrande raising questions about the overall health of the Chinese economy. The US Federal Reserve (Fed) met during the month, with the Fed expected to announce the tapering of asset purchases at its next meeting in early November, with the goal of completing its balance sheet expansion midway through 2022. This would suggest that the Fed will shrink its current $120 billion per month quantitative easing programme by approximately $10-$15 billion per month. Click here to read more. Source: Morningstar
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