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Inflation accelerates but also some good news for SA

07 June 2021 Gielie de Swardt, Head of Retail Distribution at Sanlam Investments

May started off with a pleasant surprise for South Africa. Compared to an estimated National Budget deficit of 12.3%, as presented by Minister Mboweni during his Budget Speech earlier this year, the actual shortfall came in at 11.2% of GDP. Other good news was the announcement by Minister Gorhan that Eskom had reduced its debt by almost a fifth after repaying matured loans and benefiting from a strong exchange rate.

Higher inflation is back
During May inflation data for April was released. The annual inflation rate in the US soared to 4.2% in April of 2021 from 2.6% in March and well above market forecasts of 3.6%. It is the highest reading since September 2008. Locally, SA consumer inflation accelerated from 3.2% in March to 4.4% in April. The main contributors to the higher local inflation were food and non-alcoholic beverages; housing and utilities; transport; and miscellaneous goods and service.

SA launches phase 2 vaccinations
Also in May, South Africa launched phase two of its vaccine rollout with the aim of inoculating five million citizens aged over 60 by the end of June.

Heineken in talks with Distell
Five years after the $100 billion merger between Anheuser Busch and SABMiller was concluded, it seems like another giant beverage deal is brewing. Speculation was rife of a possible deal between the world’s second largest beer group Heineken and South African Distell. The two companies confirmed during the month that they had entered into discussions.

Tesla makes U-turn on Bitcoin
It was a volatile month for cryptocurrencies in general and Bitcoin in particular. Musk cited concerns about ‘rapidly increasing use of fossil fuels for Bitcoin mining and transactions’, while signalling that Tesla might accept other cryptocurrencies if they are much less energy intensive. He also said the company won’t be selling any of the Bitcoin it holds. Two days later Musk tweeted that Tesla had suspended vehicle purchases using Bitcoin due to climate change concerns. Bitcoin fell by more than 10% after the tweet.

The rand was the star performer in May
The rand continues to strengthen on the back of the commodities run. During the month of May it gained 5.43% against the US dollar and 3.95% against the euro. SA equities as measured by the FTSE/JSE All Share Index (ALSI) gave a total return of 1.56% for the month. For South Africans looking to diversify offshore, the MSCI World index returned 2.93% in rand terms for the month. The local listed property sector (SAPY) struggled in May and lost 2.88%. SA bonds (ALBI) gained a handsome 3.73% during the month and cash (STeFI) returned 0.31%.

One-year returns ‘hide’ the crash of 2020
Since last year’s market lows, most indices have recovered well. The ALSI returned 38.11% for the year to end May. Listed property grew by 37.33% for the past year. The ALBI returned 11.11% for the year, and cash gave 4.15%. The rand strengthened 22.18% against the US dollar and 14.46% against the euro over the 12 months to end May. The MSCI World Index gave South African investors 9.44% in rand terms.

Over five years, global equity won the round
Over the past five years to May 2021, the ALSI returned 7.98% per year. As the worst performer over this period, listed property (the SAPY) returned -7.25% annualised over the past five years. Bonds, as measured by the ALBI, at 9.79% returned more than local listed equities. Cash gave 6.69% p.a. on average over the past five years. The MSCI World Index (developed market equities) gave a 11.16% p.a. total return in rand terms over the past five years, comfortably beating all major SA asset classes. SA consumer inflation averaged 4.3% on average per year.

Table 1: Total returns to 31 May 2021

 

May

YTD

1 year

5 years

ALSI (equity)

1.56

16.02

38.11

7.98

SAPY (property)

-2.88

15.42

37.33

-7.25

ALBI (bonds)

3.73

3.86

11.11

9.79

STeFI (cash)

0.31

1.52

4.15

6.69

MSCI World

2.93

4.04

9.44

11.16

$/ZAR

5.43

6.60

22.18

2.69

Euro/ZAR

3.95

6.66

14.46

0.86

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