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Multivest Market Watch - October 2021

Updated: Nov 8, 2021

Equity indices rebound on better earnings in October

  • Equity markets dismissed concern over the imminent Fed taper as markets focused on 3Q earnings reports in October. The S&P 500 index led the gains, rising 6,9% in October, its biggest monthly gain in almost a year, followed by the Euro Stoxx50 and the FTSE 100, which were up 4,7% and 4,4%, respectively, in USD terms. The JSE All Share index ended the month 3,7% higher in USD terms. The MSCI EM index gained less than 1% during the month.

  • Looking at commodity price performance during the month, oil prices continued to rise, with the Brent Crude price closing at USD83,72 per barrel (+7% m/m), while WTI crude closed 11,4% higher compared to September, at USD83,57 per barrel. The high oil price is a result of tight global supplies and increased demand for oil products given shortages in natural gas.

Global inflation rates rise as a result of the higher oil price and supply chain bottlenecks

US CPI increased to 5,4% yoy and 0,4% m/m in September, from 5,3% yoy and 0,3% m/m in August. Core inflation remained unchanged at 4% yoy. Key inflationary drivers of the annual inflation rate were housing, food, new vehicles and energy prices, while key disinflationary drivers were used vehicles, transport services, apparel and medical care. The US PCE deflator also rose to 4,4% yoy in September, from a downwardly revised 4,2% yoy previously, in line with consensus. Inflation was driven largely by higher energy prices.

In the UK, CPI eased to 3,1% yoy and 0,3% m/m in September, from 3,2% yoy and 0,7% m/m previously. Core inflation eased to 2,9% yoy, from 3,1% previously. The drop in inflation can be attributed to high base effects from the restaurants and hotel industry. Prices in the industry increased by 3,0% last year when the government’s discount policy introduced in August 2020 ended. Inflation is expected to rise in the coming months due to higher energy prices.

Consumer price inflation in the Eurozone accelerated to 3,4% yoy in September, from 3% previously. Inflation was driven mainly by higher energy prices (+1,9% vs 1,7% previously). Core inflation remained unchanged at 1,9% yoy.

China’s CPI eased further to 0,7% yoy in September, from 0,8% yoy previously. Food prices continued to ease during the month, dropping by -5,2% yoy, from -4,1% previously, driven by lower pork prices. In Japan, CPI accelerated by 0,3% yoy in September, after contracting by 0,4%.

Global inflationary pressures remain elevated on the back of the rising oil price, global supply chain bottlenecks, power outages in China limiting manufacturing and exports, and shortages of key inputs (such as semiconductors) in the near term.


Growth: We recently upgraded our growth forecast for SA, for both 2021 and 2022, to 5,3% and 2,4%, respectively, from 4,7% and 2,3% previously. Our growth estimate is higher on the back of strong net exports and higher commodity prices as well as marginally stronger household consumption expenditure than we previously expected. However, high-frequency economic data prints for 3Q suggest a quarterly contraction is likely, driven by declines in manufacturing output, inventories, household spending and fixed investment. Inflation: While headline CPI is expected to remain close to the 4,5% target, upside risks have materialised in recent months, raising the forecast for the annual average rate. While this has been driven predominantly by higher fuel costs recently, we are likely to see import costs rise in the coming months on the back of port and delivery disruptions, and the sharp rise in shipping costs that have kept PPI inflation elevated. In November, the local petrol price was hiked by R1,21/litre (a 6,6% m/m hike), taking it to R19,54/litre, while the diesel price was increased by R1,48/litre to R17,20/litre, a 9,4% m/m hike. Petrol is up 34% yoy in November (+24% yoy in October), while diesel is up 40% yoy in November (+27% yoy in October). This will likely raise SA CPI to 5,1%, 5,4% and 5,3% yoy, respectively, from October to December 2021 (with an annual average of 4,5%). Monetary policy: In line with our expectations, the SARB MPC kept the repo rate unchanged at 3,50% in September. This decision, like the last one, was unanimous. However, the tone of the statement was significantly more hawkish than the last one, in line with our and market expectations, with SARB’s QPM adding 25 bps worth of rate hikes to the repo rate by the end of 2023. Given that this decision was unanimous but growth, inflation and repo rate estimates are all higher, and specific upside inflation risks remain a concern, we believe a hike at its next meeting in November is still on the cards. Fixed income: Our fair-value range for the R2030 is 8,50-9,00%, while the fair-value range for the R2048 is 10,00-10,50% over the next three months. Our point estimate for the R2048 is now 10,20% (vs 10,50% previously). Our long-term/structural view remains neutral long-duration bonds, as we believe the fiscal trajectory will likely deteriorate in the absence of structural reform implementation. Currency: We update our model estimates for the USDZAR. Although our fair-value estimates remain unchanged in our latest update, they do confirm our call made last month to move our rand view weaker. With the USDZAR now above our fair-value level of 15,10, we are by extension neutral on the currency. That said, should we have to choose, we favour a slight strengthening bias for the rand in the near term. As before, we will again turn better buyers of USD with the USDZAR below 14,80.

Source: Nedbank CIB Markets Research

Disclaimer – The views and observations in this report represent the analyst’s own and not the Multivest nor Nedbank Group house view.


Multivest Chartbook - October 2021

Multivest Portfolio Returns

Disclaimer: The investor is liable for CGT on any transactions in the units of the underlying unit trusts within the wrap funds. Compulsory investments are not subject to CGT. Performance is calculated using net returns(after fees) of the underlying unit trusts, and quoted excluding wrap fund fees. Performance quoted is pre-tax. Fund performance numbers shown are for a notional portfolio and do not reflect the actual performance of the client invested in the wrap fund due to timing differences of investments or disinvestments of the client. Benchmark returns for CPI are based on actual published returns and an estimated one month return for the month of the report date. ASISA Benchmark returns are the ASISA returns available as at the time of reporting.


Multivest Economic Overview – October 2021

October was dominated by energy issues all around the world – and these issues are likely to persist, affecting future consumer price inflation (CPI), interest rates and world economic growth.

Various events in China are and will be causing a slowdown in the pace of economic growth. Real GDP in the third quarter grew only 4.9% from a year earlier, and was up only 0.2% from the second quarter – the second-lowest quarterly growth since 2010. Reasons for this are the shortage of electricity (16 of 31 provinces are experiencing electricity rationing) due to a lack of sufficient coal, and government policy preventing large increases in electricity prices (creating no incentive to curb demand); weakening of the massive property and construction sector following government restrictions on property developers (this sector is estimated to comprise 28% of GDP); continued disruptions of supply chains; and the negative impact of periodic regional outbreaks of COVID-19. The government intervened recently, and is in process of increasing the cap on price increases from 10% above the base to 20% above the base, while there will be no ceiling for high energy-using industries. This is likely to raise CPI, though, and may cause interest rates to increase.

India is also facing a coal shortage, while demand for electricity is rising faster than the ability of the market to supply coal. As such, India may be challenged by the same disruption to industrial activity that is happening in China. Should both India and China’s economic growth decelerate, it will have a substantial impact on world economic growth via lower exports to these countries.

The UK and Europe are facing power problems of their own. Its natural gas prices increased fourfold over the past six months. As gas accounts for 40% of UK electricity generation and comprises around 25% of electricity generation in Europe, the surge in prices fed through to wholesale electricity prices, which almost tripled since March. The sharp increase in natural gas prices can be attributed to a few factors, namely insufficient reserves when demand increased (due to a cold winter and hot summer); maintenance work at producers in the North Sea and Russia which affected supply; low wind speeds which affected generation via wind-power; while droughts limited hydropower generation. Higher energy costs will increase consumer price inflation in both the UK and Europe. Already in August, consumer energy inflation hit 15.4% in the euro area and 9.5% in the UK. Furthermore, the increase of 12% in the UK’s energy price cap in October will cause the energy bills of consumers who are on tariffs below the current cap to rise by up to 50%. The Bank of England expects CPI to increase by more than 4% compared to the target of 2%.

In the US, talks on CPI and bond purchase tapering still dictate market directions. CPI in September was up 5.4% from a year earlier (5.3% in August). Core CPI (ex food and energy) were up 4.0%, unchanged from August. The price of energy increased substantially, with the price of gasoline up 42.1% from a year earlier and the price of natural gas 20.6% higher. However, higher CPI is still regarded to be transitory and bond purchase tapering is expected in December. Interest rates are at this stage still expected to increase in 2023, following economic growth of only 2% in Q3, down from 6.7% in Q2.

South Africa’s Q4 economic growth will be hit by load shedding, following slower Q3 growth emanating from July’s lootings. CPI should have reached a peak of 5% in September and interest rates should remain unchanged in 2021. However, increasing oil prices (at $85 per barrel - demand exceeds supply as new investment in production falters due to a move away from fossil fuels) will continue to put upward pressure on CPI. Budget revenue is likely to see another overrun of around R100 billion in 2021. Expenditure, however, is also above target. The fiscal deficit should, however, be much lower than projected in the February budget, which should appease rating agencies, for now!

Multivest Economic Division


This Document has been issued or approved for issue by a representative of Multivest and has been forwarded to you solely for information purposes. The information contained in this Document is confidential and is not intended to be, nor should it be construed as, "advice" as contemplated in the Financial Advisory and Intermediary Services Act, 2002 or otherwise under any analogous requirements or legislation in any other relevant jurisdiction, or a direct or indirect:
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