This year has been characterised by immense duality: The record velocity at which markets declined and then recovered; despair and hope; growing income disparity; stimulus on/stimulus off; and investor sentiment around increased Covid-19 infections versus positive vaccine developments. As we transition into 2021, such duality may continue as ‘‘traditional’’ industries begin to shift to pre-pandemic norms, whilst the trend towards innovation and digitilisation – accelerated by the pandemic – will stay intact. At the same time, fiscal spending and stimulus across the globe should remain high, while interest rates are set to remain low.
“In a ‘Year of Renewal’ we will see a world that is steadily returning to normal, despite continued uncertainty, while also rapidly accelerating into a transformed future”
– UBS Bank
- According to a recent report by Franklin Templeton, headline US valuations remain dangerously elevated, though they believe stock specific opportunities abound given the depth and dynamism of America’s corporate sector as well as higher market dispersion as volatility returns.
- Moderna and BioNTech/Pfizer reached a new high on Wednesday climbing 10% on the news of their effective coronavirus vaccine. Meanwhile, AstraZeneca announced that they too have a potential vaccine. Tempering this optimism, the World Health Organisation’s chief scientist announced that people will need to take precautions for the next year as countries need time to vaccinate their populations. The international travel industry is calling for Covid-19 passports, a document proving that an individual is virus free.
- President Trump has finally given formal approval for President-elect Joe Biden to receive the President’s Daily Briefing, which comprises the threats and intelligence developments compiled by the national security community.
- In the meantime, Joe Biden has been appointing senior officials to his incoming administration. Janet Yellen has been picked as Treasury Secretary, which has garnered universal praise. However current Treasury Secretary, Steven Mnuchin, may have already handicapped her spending discretion by placing $455 billion (in unspent Cares Act funding recovered from the Federal Reserve), in an account that lawmakers will control.
- The UK is facing its worst economic slump in 300 years! This comes as the chancellor of the exchequer, Rishi Sunak, introduced some controversial spending cuts (such as reducing the UK’s foreign aid budget) in order to buoy the jobs market; Brexit negotiations are trudging along; and relations with China are deteriorating.
- Global equity markets lifted once again this week, buoyed by the positive vaccine news; stronger than expected US economic data; and Janet Yellen’s selection by the Biden administration.
- Ninety One Asset Management believe that South Africa has cause to celebrate following President-elect Joe Biden’s victory. The Trump presidency was volatile, and emerging markets get punished during periods of volatility.
- The South African Reserve Bank (SARB) published a financial stability report, arguing that the country’s economy has shown resilience against the Covid-19 lockdown measures. However, Moody’s and Fitch Ratings responded by lowering the country’s rating even further into junk status. With specific reference to Moody’s, its downgrade announcement was particularly disappointing, as it would appear that the agency does not buy the optimism that recently unveiled government plans to fix SA will be implemented or effective.
- The African Transformation Movement has proposed a motion of no confidence in President Cyril Ramaphosa, which Parliament has scheduled for Thursday, 3 December. While the party is small – only two MPs – making the motion unlikely to pass, it may be seen as an opportunity for Ramaphosa’s critics to grandstand. The motion comes at a time of major factionalism within the ANC, triggered in no small part by the arrest for fraud and corruption, and release on R200 000 bail, of ANC Secretary-General Ace Magashule. It is now highly probable that this factional battle in the leading party will be taken to the branches.
- South African business confidence jumped to its highest level in more than two years in the fourth quarter of 2020. This was largely due to lockdown restrictions easing, thereby causing a resurgence in economic activity. According to RMB’s Business Confidence Index, the gauge leapt from 24 in Q3 to 40 in Q4, levels last seen in the second quarter of 2018. While this is a positive boost, 40 on the Index is still a woefully low gauge of business confidence, making it a failing grade out of 100. The Index was last over 50 in Q4 2014 – six years ago, showing that while Covid-19 has had a negative impact, South Africa’s hardships cannot be credited to the virus alone.
- The Public Investment Corporation (PIC), Africa’s biggest fund manager, will throw Eskom a lifeline by smoothing the maturity of its bonds in helping to resolve its debt crisis. Eskom’s debt had ballooned to R488 billion at the end of March 2020. The utility’s finances have deteriorated despite the government having given it R188 billion in bailouts over the past decade.
Sources: Dynasty, Reuters, Bloomberg Markets, The New York Times, Daily Maverick, and Moneyweb, etc