Tumultuous start to 2022

It is not even the end of January and we have seen some fireworks in world markets already. The Technology Index (Nasdaq) is down more than 10% from its highs; the broader S&P500 is down 6% year to date; and the rand is more than 4% stronger against the dollar. The main problem is the rising bond yield in the USA in anticipation of rising interest rates to stem the rising rate of inflation. Local shares are doing much better and we are clawing back some of the underperformance we have experienced since 2015. For the past few years fund managers have been predicting a relative outperformance by emerging markets relative to developed markets. We saw some of this realised in South Africa last year but owing to the severe underperformance of Chinese stocks, most emerging market funds had a horrible time in 2021.

The predictions for 2022 by most fund managers are still a strong local and emerging equity market; good performance by local bonds; bad performance by US bonds; a stabilisation of the property market; and a slightly stronger rand. The rand is supported by a potential Chinese demand for our base metals as they try to stimulate their economy; the expectation of an improving debt-to-GDP ratio; and a rather disciplined monetary and fiscal policy. What can make this all go away, is a stronger dollar because of better risk-free yields in the USA; and of course a disastrous ANC conference at the end of the year.

We have to keep in mind that there will always be something to worry about. This year we shall hopefully see Covid being sidelined, but geopolitical tensions between Russia and the Ukraine; or between the US versus China and North Korea; or an asteroid strike; may just take its place. So, as long as there is strong economic growth as we expect there to be, share prices will bounce back from oversold levels.

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