Global Inflation – 4th Quarter 2021
Global inflation signals have persisted as elevated levels of consumer spending continue to collide with supply shortages across the world. It is likely that inflation will abate to some extent in 2022 as we expect supply side disruptions to be resolved to some extent. Inflation is the continuous increase in prices over time. This represents the increase in the price of goods and services offered by a country. As inflation increases it conversely erodes the purchasing power of a country’s currency. There are generally two types of inflation, cost-push, and demand-pull inflation. Cost-push inflation (decrease in aggregate supply) can occur from shortage of supply or due to increase in production cost (i.e., increase in wages or energy). Demand-pull inflation (increase in aggregate demand) is the result of increase in overall demand which can be generated from an increase in money... Read More
Local property market – 4th Quarter 2021
Listed property performed exceptionally well over the quarter returning 8.4% and 36.9% for the year ending 2021. However, it is important to note the considerable base effect at play within the sector, which still has a negative 3 and 5-year annualised return. The property sector faces a systemic shift in demand amid rising online sales activity, and as more companies permanently adopt a work-from-home approach. As demand requirements for the post-pandemic era become clearer, so too should the outlook for the property sector. The GTC Real Estate Fund handily outperformed the South African listed property index for Quarter 4 of 2021 (10% vs. 8.4%). This was a strong performance for a passive, rules-based portfolio and so far, confirms that the underlying investment strategy – the risk parity approach – is working well. GTC Real Estate Portfolio As at Dec... Read More
Global Inflation – 3rd Quarter September 2021
Inflation is the continuous increase in prices over time. This represents the increase in the price of goods and services offered by a country. As inflation increases it conversely erodes the purchasing power of a country’s currency. There are generally two types of inflation, cost-push, and demand-pull inflation. Cost-push inflation (decrease in aggregate supply) can occur from shortage of supply or due to increase in production cost (i.e. increase in wages or energy). Demand-pull inflation (increase in aggregate demand) is the result of increase in overall demand which can be generated from an increase in money supply or government spending among other drivers. Current global inflation is as a direct consequence of both cost-push and demand-pull inflation.
Global Inflation & interest rates – 3rd Quarter September 2021
The US FED kept interest rates unchanged over the quarter, while continuing its asset purchase program in its efforts to provide liquidity to the market. Over the quarter investors reacted negatively amid rising global inflation and bond yields. Market participants appear to be pricing in a sooner than expected moderation to the prevailing accommodative monetary policies. The UK recorded a relatively significant monthly increase in inflation for the month of August. The monthly inflation at +0.9% is large, though is likely to be temporary as it is predominantly due to low base effect. The annual inflation figure of +3.2% is sparking fears that the Bank of England may hike rates earlier than previously planned. The largest monthly contributor to inflation came from the transport sector, whilst the largest year-on-year contributor came from the restaurant sector as economic activity increased.
Local property market – 3rd Quarter September 2021
The quarter saw no change in the local repo rate, which remained at an all-time low of 3.5%. However, local market jitters over future potential rate hikes have emerged once again, as investors remain concerned about global inflation and unexpectedly hawkish moves by the US Fed. The local favourable interest rate environment has been a boon to the local property sector, aiding it in its recovery from previous lows. Whilst the local property market earned +5.9% over the quarter, this sector is still severely depressed as evidenced by its negative medium-term returns of -6.8% annualised over 3 years to September. The property sector faces a systemic shift in demand amid rising online sales activity, and as more companies permanently adopt a work-from-home approach. As demand requirements for the post-pandemic era become clearer, so too should the outlook for the property... Read More
China & Tencent – 3rd Quarter September 2021
The change in Chinese regulatory policies can be seen as China’s way of re-affirming control over their market, as they essentially play ‘regulation catch-up’ after a period of significant growth in their technology sector. This has been a sustained period during which technology companies have experienced a relatively large degree of freedom. The recent regulations seem to be centred around regulating new industries and aligning the regulatory environment with China’s stated 5-year plan. The Chinese government wants people to have more children, however, a major deterrent to this is the cost of raising those children. In addition to conventional schooling, further online tutoring has become a concern for the Chinese government, as it views conventional education as a public good. The significant additional cost of private tutoring has placed a further burden on parents, an unintended consequence so far as the... Read More
Global and local equity markets – 3rd Quarter September 2021
Developed market equities (MSCI World), propelled by the 5.5% rand weakness over the quarter, outperformed both the global emerging market equities (MSCI Emerging Market) and the South African equity market (JSE Capped SWIX) in rand terms. In base currencies, all three equity markets were hard hit by the risk-off trade in September. Excluding the effect of the currency weakness, SA equities outperformed both developed and emerging market equities over the quarter. The elevated level of investment market uncertainty over the past few months can be, in part attributed to the energy crisis in Europe, China’s Evergrande contagion, global supply chain disruption (i.e. electronic chip shortages), lacklustre global economic recovery, and tightening Chinese regulation. To the extent that the Chinese regulatory changes have significantly impacted the gaming sector generally, and Tencent in particular, we experienced a meaningful ripple effect in the... Read More
Dollar – 3rd Quarter September 2021
The rand weakened some -5.5% over the quarter following the July riots and unrest in South Africa, global supply chain disruption, and surging oil prices. Over the longer term and on a simplistic basis, the South African rand seem to be close to fair value relative to the US dollar as indicated below:
