Volume 18 Issue 11– December 2020

COMMENT AND OUTLOOK – Roller Coaster Year Ends

In February, this year we wrote – “The economic impact, if the virus is not contained, could be quite significant”. That was a massive understatement, and we had no concept at that time of the extent to which the world would be changed by the Coronavirus spread and the economic havoc that it would cause. That this year is drawing to a close almost provides some sense of relief that we will soon be putting 2020 behind us and hopefully moving towards a more normalised situation in 2021 and beyond. The fact that a vaccine will be rolled out will help but the economic damage that has been caused will take some time to overcome. The world was basically shut down for an extended period during the height of the virus spread and that is a feature of 2020 that we will all want to move on from. The Coronavirus resurgence currently underway in many parts of the world is hampering the prospects of a sustainable economic recovery. A significant number of the jobs that were lost around the world during the height of the economic slump, have not yet been recovered and that is a situation that will prevail until the virus is overcome and normal global economic activity is resumed. What this past year did highlight was the difference between good political leadership and poor political leadership in dealing the virus spread and its impact. Good leaders took early decisive steps to curb the spread and minimise the human and economic impact of the virus. The poor leaders took too long to react and underestimated the impact that the rapidly spreading virus would have. Apart from some silly regulations the South African government under president Ramaphosa generally did quite well in managing the impact of the virus on the people of South Africa.

The world can also look forward to 2021 without Donald Trump as the president of the United States. It is unlikely that president- elect Joe Biden is going to be a significant improvement in terms of overall leadership and delivery but at least the office of the president of the United States will have someone in charge who has a bit more decorum and respect for other global leaders and nations. The US presidential election was a very closely contested one and President Trump gained 4 million more votes than he got when elected in 2016. At one stage he appeared to be heading towards victory, but the postal ballot went significantly in favour of Joe Biden. It was one of the highest voter turnouts in any American presidential election and has left a somewhat divided nation which Joe Biden is going to have to work hard to unite. President Trump appears to have thrown in the towel on his contesting of the outcome but has said he will only concede after the electoral college vote on 14 December.

The markets have reflected the uncertainty that has been experienced throughout and fell 34% from mid-February to late March, which was one of the steepest declines on record. Massive government and central bank stimulus measures triggered a recovery in markets which resulted in markets rising and by the end of November, the US markets were all showing gains for the year to date and most of the other major markets had recovered all or most of their losses. November was a particularly good month for the markets after a very weak October with all markets around the world showing good gains. The SA equity market had a very good month in November after having dropped in October to levels last seen in April this year. The overall SA market is now back to where it started the year but there have been some sectors that have done particularly well and others that are still well off where they were at the start of the year. The resource shares, apart from gold shares, and some of the Rand hedge shares have done well this year. The worst performing shares have been the listed property shares with banks also still well down on where they were at the beginning of the year. The oil price has had an extraordinary volatile year and fell to record lows before recovering to the current USD 48 per barrel. Gold had a strong start to the year and has weakened recently but is still well up on where it started the year. The Rand has also seen significant volatility but against most expectations has had a reasonably strong recovery over the past few months and is currently trading at R15.20 per USD. Markets will remain volatile but with better prospects.

There are signs of an economic recovery in SA and an improvement in the global economy will help as well. The long and slow process of fixing the capacity of the state in SA is showing signs of progress. The disappointing aspect of this is the realisation of the extent to which the capacity of the state had been broken down. The National Prosecuting Authority has recently charged its first political big fish on corruption related charges, in the form of ANC Secretary-general and former Free State Premier, Ace Magashule. It is unlikely they would have done this if they were not confident that they had a strong chance of successful prosecution. Eskom, which is a critical enabler of economic growth, appears to be on the road to operational recovery. The Medupi power station is completed and will be fully operational by the end of December. Further progress is being made with completing Kusile and the long term maintenance of other power plants. Eskom’s financial position will however have to be dealt with. If there is a global economic recovery SA may well participate and not be left behind this time. We wish all our readers a Happy and Safe Festive Season. The Acorn Brief will be back in February.

Twinoaks Investment Management (Pty) Ltd (Twinoaks) is an FSB approved Discretionary Financial Service Provider – No 849. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Twinoaks has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. For any further information concerning this publication, please contact Twinoaks