Market overview:
Global:
Global equities ended a turbulent year and quarter in buoyant mood. Despite ongoing COVID-related uncertainty, associated lockdowns, supply chain challenges and persistent inflation, a combination of continued monetary and fiscal support, strong company earnings and a broadly positive economic outlook for 2022 continued to drive returns higher. In December, global equity markets posted strong gains as fears abated over the fast-spreading but apparently less virulent Omicron variant. Meanwhile, geopolitical news was dominated by rising tensions between Russia and Ukraine and two video summits between Biden and Putin. Developed market (DM) stocks (MSCI World Index) capped another strong quarter, up 7.8%, while emerging markets (MSCI Emerging Markets (EM) Index) remained under pressure, down 1.3% over the same period and -2.5% for the year. US equities recovered November’s Omicron-induced losses, rallying to post an 10.9% gain for the quarter (+28.2% for the year), with the benchmark S&P 500 extending its winning streak to seven consecutive quarters since the March 2020 sell-off. European equities (Euro Stoxx 600, +5.5%) also ended the quarter with robust returns on the back of strong company earnings and a steady economic recovery. Asian markets spent the year contending with Beijing’s ongoing regulatory tightening in the technology and property sectors, alongside slowing Chinese growth. China’s blue-chip CSI 300 Index posted a positive return for the quarter, up 1.5%, while Japan’s Topix ended in the red, down 1.7%. Fixed income markets endured a downbeat year, with persistent inflation and either the prospect of monetary policymakers paring back support or (in much of EM) proactive rate hiking to tackle inflation weighing on bond prices. The fourth quarter closed flat as bond investors continued to digest the evolving global monetary policy outlook, including a notably hawkish pivot by the US Federal Reserve (Fed). The Bloomberg Barclays Global Aggregate Bond Index ended the quarter down 0.7%. All returns are quoted in US dollars.

Commodities:
The Bloomberg Commodities Index recouped some of the losses seen in November but ended the quarter down 1.6%. The onset of the Omicron variant disrupted oil’s recovery, and while paring back some of the losses in December, international oil prices capped their worst quarterly performance since the outbreak of COVID. That said, oil was a standout performer for 2021 as a whole, with Brent Crude and West Texas Intermediate gaining 50.1% and 55%, respectively. After a stellar 2020, gold recorded its worst year since 2015 as the yellow metal lost some of its allure as a hedge against inflation, with investors finding more appeal in booming equity markets and at times the volatile universe of cryptocurrencies. Bullion did, however, record a healthy 4.1% gain over Q4. Other commodity prices were mostly stronger over the quarter: zinc gained 20.4%, nickel 15.1%, lead 10.1% and copper 7.2%, while aluminium lost 1.6%. However, aluminium was among the strongest gainers in 2021, up 41.9%, even as copper gained 25.2%, zinc 33.3%, and nickel 26.5%. Precious metals were much more subdued for the year, with palladium down 20% in 2021, platinum losing 9.4% and gold falling 3.4%. All returns are quoted in US dollars.

South Africa:
Africa’s most industrialised economy contracted over Q3 as output fell more than expected amid the social unrest and violent protests in July. The contraction followed four consecutive quarters of expansion. The onset of the fourth wave of Omicron-led infections poses further downside risks to the pace of the economic recovery. Accordingly, Bloomberg-surveyed economists moved to downgrade growth forecasts for 2021 to +4.9% from the previous estimate of +5.1%. Sentiment on South African factory floors lost steam in December; the manufacturing PMI retreated by 3.1 points but remained in expansionary territory at 54.1, while the FNB/BER Consumer Confidence index (CCI) showed a return to pre-pandemic levels in Q4, although the survey was conducted prior to the onset of Omicron and the travel bans and uncertainty that ensued. Price pressures at the factory gate continued to intensify as producer price inflation (PPI) quickened to 9.6% year on year in November, from 7.8% in the previous month, while consumer prices (CPI) accelerated to 5.5% in November from 5.0% y/y the previous month, above consensus expectations of 5.4%, driven by transport and fuel price hikes. The South African Reserve Bank (SARB) delivered a 25 basis point hike in the main lending rate at its final MPC meeting of 2021, which was a hawkish pivot against the consensus expectation of rates remaining unchanged. The improved sovereign debt picture allowed Fitch Ratings to improve SA’s long-term foreign currency rating outlook to ‘stable’ from ‘negative’. Commodity prices, which provided a strong underpin to SARS revenue collections and the local equity market in 2021, are likely to be less supportive in 2022. The SARB’s expectations are for growth of 5.3% in 2021, falling to 1.7% in 2022 and 1.8% in 2023.

South African equities in the FTSE/JSE All Share Index (ALSI) delivered a solid quarter of returns (+15.1%) and capped their best year since 2009, gaining 29.2% in 2021. At a super-sector level, resources (+21.6%) and industrials (+16.1%) did the heavy lifting over the quarter, while financials recouped prior losses with strong performance in December to end the quarter up 3.4%. In yield-oriented assets, the JSE All Bond Index (ALBI) ended the quarter up 2.9%, despite selling pressure in EM debt markets over the period. Inflation-linked bonds (ILB’s) posted a healthy return of 5.1% for the fourth quarter and 15.5% for the year, outperforming their nominal counterparts. The listed property sectors (FTSE/JSE All Property Index and FTSE/JSE SA Property Index) continued its recovery with further gains in December and a quarterly return of +8.4% and was the best-performing asset class in 2021 (+38.6%) following a dismal 2020 (-35.5%). Cash, as measured by the STeFI Composite Index, remained broadly stable at 0.34% for the month and 0.98% for the quarter. In currencies, the rand retreated against the US dollar, euro and pound sterling. The rand weakened against the US dollar 5.8%, 6.2% versus the pound sterling and 3.9% against the euro over the fourth quarter.

At the sector level, basic materials had a strong quarter and year overall, with miners of precious metals led higher by gold company stocks (Gold Fields and Harmony Gold Mining Co.), returning 41.2% and 42%, respective for the fourth quarter (Q4). Platinum-group metals miners also recorded positive gains, with Royal Bafokeng Platinum (110.6% Q4) the standout performer as a bidding war for a controlling stake in the miner sent the share price to the summit of the bourse. Index bellwether Richemont (55.2% Q4) drove most of the performance for the consumer goods sector and the local index as a whole in 2021, with the luxury goods maker soaring to record highs on the back of resilient and consensus-beating earnings, while the weaker rand provided additional tailwinds. The travel and leisure sub-sector also recovered from its 2020 lows on the back of easing lockdown restrictions, boosted further by government lifting the curfew that has been in place since the onset of COVID. At a bond sector level, the 12+ year area was the best performing sector for the quarter delivering a return of 4.08% and the 3-7 year area was the worst performer returning 1.06% for the fourth quarter.