Looking Back at a Volatile 2020 Economy

In the turbulent economic wake of the global pandemic, financial markets have had three significantly different quarters so far this year. Let’s take a closer look…

• The First Quarter (Q1) was characterised by fear and uncertainty, as investors sought to see this pandemic out.  
• The Second Quarter (Q2) was one of greed and action, as investors found bargains in shares that should not have been sold down so aggressively – as they were benefiting from the effects of the virus, e.g. technology companies, or they were quick to adjust to the new circumstances (e.g. retailers switching to online shopping). 
• Markets took a breather in the Third Quarter (Q3), anticipating a Fourth Quarter (Q4) characterised by anti-Chinese rhetoric from the West; political uncertainties in what is potentially an acrimonious presidential election in the US; the unending Brexit deal; and hard-hitting second waves of COVID-19.

And now on the local front…

The SARB MPC met in July, when they cut the repo rate 25bps to 3.5%.  In September, the MPC left the rate unchanged.  This is the lowest rate since inception in 1999.  Currently, there is a view that the rate will remain at 3.5% until the end of 2021. Additionally, headline inflation averaged 3.2% in Q3.

Having weakened in Q1, the Rand recovered somewhat in Q2.  During Q3, the Rand appreciated from USD/ZAR17.35 to USD/ZAR 16.76. That said, the outlook for the Rand remains uncertain in the wake of global uncertainties linked to the COVID-19 pandemic.

Financials ended down -1.6%, while Industrials underperformed and ended the quarter at -2.3%.

Resources continued to outperform during the quarter (+6.7%), as the demand for commodities remained relatively robust, mainly due to a recovering Chinese economy.

Source: Coronation Fund Managers, MitonOptimal