Taking Stock of 2021 (and What investors Should Know about 2022)

On the Global front…

  • The unprecedented fiscal and monetary stimulus supported a strong market rebound in 2021.
  • The effects of the pandemic in 2021 included the impact of new variants, supply chain bottlenecks and inflationary pressures.

Developed markets, awash with liquidity, continued to do well in 2021.  However, the Omicron variant diminished year-end risk appetite.  Two developments that gave investors cause for concern were:

  • Global supply chain challenges, which came to a head in the third quarter.
  • Increasingly hawkish US monetary policy. The tightness seen in the physical goods markets sent goods inflation sharply higher throughout 2021.  As inflationary pressures built up, the debate over whether inflation was transitory – or more persistent – raged on.  Regardless of this debate, monetary policy began to tighten and is expected to continue to tighten in 2022.

Back to Local shores…

  • CPI:  5.88%
  • SA GDP Growth:  5.20%
  • The rand weakened by 7.97% against the USD and 7.12% against the GBP. The Rand started 2021 well but lost a lot of appeal with the news of the Omicron variant and its erroneous link to South Africa.
  • The SARB raised interest rates by 25bps.

The South African economic rebound in 2021 was better than expected, buoyed by strong commodity demand and a robust agricultural sector, with the current account recording its strongest surplus in decades.

In Summary…

Coming off the back of 2020 (not a positive year for global markets), 2021 looked good.  Year-on-year growth rates of most growth assets showed healthy gains. However, it is important to understand that 2021 came off the low base of 2020 and the year ahead may not produce the same level of returns.

Interest rates are expected to rise from current levels in 2022.  How high they go may depend on the path of inflation.

Expect some volatility in financial markets this year.

Source:  MitonOptimal / Goldman Sachs Asset Management / Laurium Capital