The Johannesburg Stock Exchange (JSE) closed firmer this quarter as most sectors in the market started to recover.  Economic activity in South Africa has slowly begun to return to some semblance of normality as businesses resumed production and lockdown regulations eased.  Our local market has seen a significant increase, driven largely by the resource sector and a resurgence in gold shares.  The closing value of the JSE of 55476 versus the 50483 in the prior quarter shows that some positivity has returned.

Unfortunately, there are still areas of our economy that remain prejudiced following the onerous lockdown regulations. Hospitality, tourism and travel have been particularly hard hit and coupled with retrenchments in other areas, this may cause further and prolonged high unemployment as a result of loss of earnings in these sectors. Banks and property stocks remain under pressure and, in some instances, dividends have been withheld until the variables are better known.

South Africa received a loan of R70 billion from the IMF (International Monetary Fund) in July to help the country manage the immediate consequences of the fallout from Covid-19. This may have serious ramifications down the line as the loan will need to be repaid with interest. With the continuing plundering of state reserves, including emergency funding, where the funds to repay this loan will come from remains to be seen. Corruption and wastage in our government departments, municipalities and state-owned entities has had a devastating impact on state finances that are already hard pressed to meet budgetary commitments.

Divisions in the leading party and general political unease is further destabilizing the economy and one can only hope that should the Ramaphosa faction emerge victorious, they remain committed to rooting out corruption and holding those who have unduly benefited to account.

In global politics, discussions between the EU and the UK regarding Brexit continue. To date, no consensus has been reached on a mutually beneficial way forward.  There seems to be some progress with the trade deal between China and the United States, however, Donald Trump’s focus seems to be primarily on electioneering with the November elections looming.  One can expect to see some interesting agendas between now and voting day.

Globally, interest rates have been cut in order to try and stimulate economies post the lockdown period with South Africa seeing dramatic cuts to record lows. This is beneficial for people with debt but unfortunately has a negative impact on people looking for income. In an effort to meet income requirements, clients may be inclined to adopt a more risk based approach but there is significant risk attached to income hunting and caution needs to be exercised to ensure that the risk and period of investing is taken into account.

Commodities have continued to rebound as global production increases and we could see further demand for metals, gold and oil going forward.  As can be seen from the chart below, global indexes in general, bar for the FTSE, have all recovered satisfactorily.

An emerging theme in investment analyst’s columns is the significant out-performance in tech sectors, being the Nasdaq and some global tech stocks.  These are now trading on very high multiples and going forward their earnings will have to match investor expectations for their capital value to remain where it is. However, given the changing habits of consumers, this capital value may be underpinned for some time as demand and ease of use may continue after lockdown. On the opposite side of the spectrum are the old high street retailers and property companies who have seen demand drop.  As the pace of change continues to increase rapidly, one needs to be nimble enough to adapt.

We would like to take this opportunity to thank those clients whom we have contacted for updated information for their assistance and patience. Unfortunately, in the new regulatory environment this may become the norm and your patience and understanding in this regard will be greatly appreciated.

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