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.