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Multivest Market Watch - December 2021


Monetary policy – 75 bps of hikes in 2022 with the first 25bps

in January

We expect SARB to hike by 25 bps in January, and we forecast 75 bps worth of hikes in 2022, well below the 150 bps in the QPM. We expect the repo rate to end 2022 at 4,5% and 2023 at 5,00%. Currently, the FRA market is pricing in 300 bps of hikes over the next 24 months, putting the repo rate at 6,75% by the end of 2023.

Despite an expected dovish surprise, SARB’s rhetoric will remain hawkish

At future MPC meetings, we expect SARB’s tone to remain hawkish as it aims to anchor inflation expectations at or below the 4,5% midpoint of the target band. At the upcoming release of the draft economic policy review in March, we expect the NT to signal a change in SARB’s mandate to a 4% point estimate rather than the current

We adjust our growth expectation lower for 2022 to 2,0% yoy, down from 2,4%.

The decline of 40 basis points (bps) comes on the back of lower commodity prices

(and, by extension, lower net exports), the increased electricity constraint and new

global COVID-19-related restrictions.

An early look at our February Budget expectations – upside surprise expected,

but an issuance increase is still likely.

We expect headline numbers in the 2022 Budget to surprise generally to the upside relative to what was presented in the MTBPS. Despite this improvement in headline numbers, a weekly increase in nominal bond issuance of R800m still looks likely in 2022/23.

Rand view unchanged, with our fair-value range between 14,80 and 15,50.

Despite the recent rand weakness, we keep our view unchanged. We see our USDZAR

fair-value range at 14,80-15,50. We see this as a three-month view.

We believe South African (SA) nominal bonds look attractive.

Real yields are high and on a multi-month view, we expect a dovish monetary policy surprise. Dovish monetary policy surprises favour an overweight bond position.

Headline CPI at 4,3% in 2022, rising closer to 5% 2023

Our forecast for SA CPI in 2022 is 4,3%, in line with SARB’s, but at risk of upward

revision due to rising international commodity prices and a weak rand.

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 - December 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 – December 2021

Many events and indicators affecting the world economy and financial markets occurred relatively early on in December, slowing towards the end of the month as the holiday season set in. Nevertheless, the world economy and markets were largely driven by a few factors, namely the COVID-19 Omicron variant, consumer price inflation (CPI) and subsequent views on monetary tightening and slowing Chinese economic activity. South Africa’s economic growth would have been negatively affected by these events in the last month of 2021.

The Omicron variant spreaded fast throughout the world, negatively impacting demand for and supply of especially goods. Although the demand slowing effect of the new variant may contribute to slower increases in world CPI, the disruption of supplies may put upward pressure on CPI. Although the outcome is still uncertain, there is little doubt about the current trends in CPI. In the US the year on year (y/y) CPI for November increased to 6.8%, while that of the Eurozone was up 4.9% (the highest since July 1991). Main drivers of the higher CPI are high energy prices (fuel and gas) caused by increasing demand and supply disruptions and goods affected by supply chain problems (motor vehicles and goods with electronic parts).

Consequently, Federal Reserve Chair, Jerome Powell, stated that the proposed slowing in the bond purchasing programme may have to be fast tracked, while the term transitory inflation should be done away with as markets interpreted it differently from what the Federal Reserve meant. Christine Lagarde, President of the European Central Bank, don’t anticipate faster monetary tightening though, as the higher CPI is still viewed as a temporary phenomenon driven by supply chain disruptions.

Although oil prices, a primary driver of higher CPI, declined somewhat in reaction to the spreading of the Omicron variant, it increased steadily towards the end of the month as risk-on returned to markets – in reaction to evidence of Omicron’s “milder” symptoms. Brent oil returned to around $80 per barrel following an initial slump to below $70 per barrel.

The Omicron variant also had a negative impact on economic growth, affecting demand in the US and Europe. China’s economic activity also slowed due to the authorities’ “no tolerance” policy towards COVID-19. Moreover, electricity rationing impacted manufacturing, which should have a further effect on fourth quarter economic growth.

South Africa’s economy was hurt by the Omicron variant as several countries imposed travel bans to the country. These bans were ill-informed knee-jerk reactions, and later removed by most countries, but the damage was done, affecting especially tourism and downstream industries. CPI also increased to around 5.5% in November and may be close to its highest point. Fuel prices were responsible for 29% of the 5.5% increase and municipal tariffs for 12%. Good news is that the trade surplus increased by R35.8 billion in November, bringing the year-to-date surplus to R412.5 billion. This should support fourth quarter economic growth, neutralizing some of the Omicron effects. Also, latest government finance numbers reveal another budget revenue overrun in the order of R100 billion, thanks mainly to high commodity prices. However, personal income tax revenue is on a declining trend, in accordance with lower employment. The share market gained further in December, ending the year 24.1% higher compared to the end of 2020. However, the rand ended the year 8% weaker against the US$ at R15.94, while the Brent oil price gained 51% to $77.9 per barrel.

2022 will be challenging, but not bad for South Africa - characterised by lower economic growth, higher CPI and interest rates. And then there will be politics to either aggravate or soften the blow!

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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