US President Biden has set out the first part of a grand infrastructure and jobs proposal, which will see $2 trillion ploughed into America’s infrastructure and its shift to greener energy. The White House plans to pay for the proposal by raising corporate taxes and eliminating tax breaks for fossil fuels. The massive spending on infrastructure could boost prices of commodities such as copper, lithium, and cobalt, with prices already climbing because of China’s investment into its own infrastructure.
South Africa also has plans to launch a massive Public Works Programme, which would create employment and help repair and create badly needed infrastructure at all levels—national, provincial and municipal. Dynasty has not focused directly on the resources sector, with our quality funds instead focusing on sectors such as technology, consumer staples and health care. However, those clients invested directly and indirectly in our selected tracker funds have exposure to mining companies to varying degrees.
“Today, I’m proposing a plan for the nation that rewards work, not just rewards wealth. It builds a fair economy that gives everybody a chance to succeed.
And it’s going to create the strongest, most resilient innovative economy in the world. It’s not a plan that tinkers around the edges. It’s a once-in-a-generation investment in America, unlike anything we’ve seen or done since we built the interstate highway system and the space race decades ago.”
– President Joe Biden, from his speech yesterday (31 March 2021) in Pittsburgh, Pennsylvania
Global News
- Norway’s Green Minerals AS has become the first publicly traded deep-sea mining stock, aiming to tap into demand for ethically-sourced battery metals. The company claims it can mine the cobalt and copper needed by electric vehicles without inflicting damage on people and the environment. Most current production comes from loosely-regulated mines in Democratic Republic of Congo.
- Tesla has been a stock exchange darling and a disruptive force in the automotive industry. Now, however, traditional rivals appear to be catching up, with VW emerging as the No. 1 electric-vehicle maker in Europe as sales of battery-powered automobiles surge due to stricter carbon dioxide limits. VW plans to eclipse Tesla’s global sales by 2025.
- A manufacturing error at a US plant involved in Covid-19 vaccine production has reportedly affected 15 million doses worth of an ingredient for Johnson & Johnson’s vaccine. This highlights the challenges the pharma sector faces in rushing out enough doses to meet global demand as the pandemic drags on and countries look for a way out of lockdown.
- The Archegos Capital Management hedge fund has imploded, highlighting the challenges of extreme leverage, secret derivatives, and rock-bottom interest rates. Banks with exposure to Archegos face steep losses, including Credit Suisse and Nomura. CNN looks at how Archegos was able to borrow so much money that its failure sent shockwaves through the market.
- Technology stocks in the US climbed on the last day of March, regaining some of their shine after a quarter in which they had lost favour.
- U.S. Treasuries have just had their worst quarter since 1980, with the Bloomberg Barclays U.S. Treasury Index falling 4.25%. Investors are expecting more pain to come with higher yields and even more losses. At Dynasty, we have not favoured this asset class in our offshore portfolios and have a strong preference for short-dated, investment grade, corporate fixed income exposure.
- The S&P 500 Index delivered its best ever 12-month return between March 23, 2020, and March 23, 2021, gaining 74.8%. Bloomberg opinion columnist Barry Ritholtz notes, however, that that the S&P 500 is up only 15.5% over a 13-month horizon. “That’s a nice return, but not very unusual. Context matters.”
Local News
- Bank of America (BofA) has increased its 2021 growth forecast for South Africa to 3.8% from an earlier forecast of 2.9%. Better than expected commodity prices are expected to contribute to higher growth for the year.
- The Cyril Ramaphosa-led faction has claimed a victory in the ANC’s factional battles. The ANC’s National Executive Committee decided that those members who have been criminally charged, including Ace Magashule, have 30 days to step aside, or they’ll be suspended. It remains to be seen whether Magashule’s radical economic transformation faction will stage a successful fightback, and whether the party can remain united as local government elections loom. Look out for analysis by Dynasty’s primary consulting political analyst, Professor Ivor Sarakinsky, next week.
- The latest Quarterly Bulletin of the South African Reserve Bank highlights the growing aversion of foreign investors to South African equities and government debt. Even the mining sector, which has delivered strong dividends and profits, is out of favour. Even Foreign Direct Investment (FDI) inflows declined to R51.1-billion in 2020 from inflows of R74-billion in 2019.
- SARS is investing in data science and forensic skills and technology to improve its ability to identify wealthy taxpayers who are avoiding their tax obligations. SARS received an extra R3 billion in the budget to increase its capabilities.
- The JSE delivered its strongest first-quarter performance since 2006, with the FTSE/JSE Africa All Share Total Return Index up 13.1%. This marks the fifth consecutive month of gains, the longest winning streak since April 2019. With the rand being at almost the exact levels of the start of 2021, the returns in dollars are equally strong, well ahead of the MSCI World Index, which ended the quarter up 5%.
Sources: Dynasty, Bloomberg, The New York Times, The Wall Street Journal, CNN, Daily Maverick, BizNews, Business Day, Moneyweb, etc.
