Review of the first half of 2021

Looking back over the first six months of 2021, we can see that the world is still in a strong recovery. Things are not back to normal yet, but we are getting there. The following figures show us the progress for the year to date:

JSE All Share +11.50%
S&P500 +14.40%
Eurostoxx 50 +14.75%
Shanghai +3.40%
Brent Crude ($) +45.26%
Gold ($) -6.74%
USD/Rand -2.87%
GBP/Rand -1.66%
Euro/Rand -5.66%

Although the average growth in equities is in the double digits, your portfolio performance will be heavily dependent on which shares you hold. Resources and Financial shares underperformed while Small Caps, Retailers and Property shares did well in South Africa. In Europe, French shares did well but UK shares not. In the USA the tussle between trusted big tech and re-opening companies is ongoing. Apple is up only 5.83% while Simon Property Group is up 57.57%.

As we have mentioned before in our writings to you, inflation is the potential enemy looming in the future. The 10-year bond rate in the US is still below average at 1.47% which means that you can borrow money at almost no cost and spend it on consumer goods, increasing the risk of inflation. The US government is also giving money away at an alarming rate to support the Covid-hit economy, which will also risk higher inflation. Oil is up 45% and we all know that prices of goods and services will increase as a result.

In South Africa we have seen a Current Account surplus, meaning more exports of our goods and services than imports, which helped the rand to strengthen. We have also seen some positive developments in the State Capture saga, which translated into a more positive business sentiment. Although the rand has grown only 2.87% stronger against the US$ in 2021, it is a massive 27% stronger than in early 2020. We have seen some fabulous recoveries in some of our stocks, like MTN (+71%), Aspen (+29%), Nedbank (+32%) and Distell (+76%). Unfortunately, our economy is in danger of slipping back due to the rolling lockdowns, slow vaccine roll-out, and continuing Eskom problems.

In summary, we can say that the world is conquering the pandemic, equity markets have recovered and interest rates are still below average. We can expect to see the performance of equities slow down as interest rates rise over the next eighteen months; and to see world trade return to normal as more and more people are inoculated. We can expect the positive sentiment in South Africa to continue as more criminals like Jacob Zuma are found guilty; but all our systemic problems like bankrupt SOEs, a broken Eskom, poor service delivery and the devastation of our SMEs due to the lockdowns, will also continue.

The times we live in require a good balance between cash, equities and geographic diversification. New problems will always occur but we do tend to work them out eventually.

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