Volume 19 Issue 9 October 2021

Beware of false knowledge; it is more dangerous than ignorance. George Bernard Shaw.

COMMENT AND OUTLOOK Brexit Bites Britain

Some  of  the  realities  of  the  decision  by  the  UK  to  leave  the European Union have started to hit home. Being part of the EU meant  that  there  was  seamless  movement  of  goods  between Britain  and  its  European  partners.  It  also  meant  that  work opportunities in the UK were freely available to citizens of the EU.  Many  of  these  work  opportunities,  particularly  in  the logistics sector, were largely filled by workers from outside the UK. The trucking and freight sector has been particularly hard hit and there is a shortage of truck drivers in the UK. This has led to fuel shortages  as deliveries to petrol stations have  been interrupted,  as  well  as  some  food  shortages  through  supply disruptions. The UK is now looking at issuing large numbers of visas to truck drivers from Europe, to encourage them to work in the UK. One of the UK’s goals in leaving the EU was to seek new trading alliances particularly with the US. This was on the cards until the changes in the US leadership at the beginning of 2021. US President Joe Biden does not have the close relationship  with  UK  Prime  Minister  Boris  Johnson  that  his predecessor  Donald  Trump  had.  As  a  result  of  this  the  UK efforts to be some part of the North American Trade agreement, on favourable terms, have been met with a lukewarm response. Another  issue  that  will  need  to  be  resolved  is  the  status  of Northern Ireland as part of the UK. As part of the UK and the EU,  Northern  Ireland  had  become  much  closer  to  the  Irish Republic and there was a seamless and soft border between the two  countries.  It  is  not  inconceivable  that  there  will  at  some stage be a move by Northern Ireland to leave the UK and unite Ireland as a part of the EU. Scotland will be watching closely.

September  confirmed  its  historical  reputation  as  being  a  bad month for global markets. Most developed and emerging world markets fell during September. The two primary reasons for the fall in markets were the concerns about the possible default of Chinese  property  developer,  Evergrande  and  the  fact  that  the US Federal Reserve appeared to have changed its outlook about tapering  its  asset  purchasing  program  which  is  part  of  US support  for  the  financial  markets.  Evergrande  is  a  very  large property  developer  in  China  which  focuses  on  major  housing development projects. It funds its activities through homebuyers  paying  upfront  and  through  secondary  financing. There are concerns that it will default on its significant debt and that  could  lead  to  financial  instability  beyond  China. The minutes  of  the  September  Federal  Reserve  meeting  indicated that  tapering  of  asset  purchases  in  the  markets  could  start towards  the  end  of  2021  which  is  much  sooner  than  had originally been indicated. This caused some concern in the bond and equity markets.

All three US markets were  down between 4%  and 5%  for the month but still remain comfortably positive for the year to date. US consumer confidence dropped during the month and inflation  still  remains  at  levels  well  above  the  target  range which is causing some nervousness. Equity markets in Europe also fell, with the German Dax down 3.6% and the French CAC down 2.5%. The UK market did a bit better and was down 0.5%. Markets  in  the  East  were  mixed  with  the  Hong  Kong  market down  5%,  the  Shanghai  market  marginally  positive  and  the Japanese market having a strong month and rising by nearly 5%. Improved economic activity was a key contributor to the move. Most  emerging  markets  were  lower  as  the  impact  of  falling commodity and base metals prices was felt. Iron ore prices fell quite sharply and declines were seen in platinum group metals and  gold.  The  JSE  did  not have  a  good  month  and  was  down 4.7% for the month but is still positive for the year to date. The oil  price  rose  above  80  USD  per  barrel  for  the  first  time  in  3 years  and  a  shortage  of  natural  gas  globally  has  led  to  a significant  increase  in  prices.  This  is  also  causing  concerns about rising energy prices and the potential impact on inflation.

South  African  Consumer  price  inflation  is  at  4.9%  and  the Reserve Bank has kept interest rates unchanged but the feedback from the September meeting indicates that an increase in interest rates may be on the cards before the end of the year. The Reserve bank has also suggested that it is looking at a target inflation  rate  of  3%  rather  than  the  3%  to  6%  range  which  is currently its objective. South Africa’s fiscal position improved with  the  first  budget  surplus  recorded  in  a  long  while  but primarily as a result of the significant increase in taxes from the mining  companies.  The  trade  surplus  for  August  increased  to R42.4  billion  as  exports  recovered  from  the  July  unrest  and imports fell slightly. This tax surplus must be used wisely as it may  not  last  so  should  not  be  treated  as  an  ongoing  income source.

The local government elections are less than a month away. The elections will indicate what people feel about municipal service delivery. In many parts it  is woeful.  The key outcome will be what kind of message, if any, is sent to those responsible.


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.