Jacob Zuma and Inflation were the big topics for June 2021
June 2021 Monthly Comment
Inflation
There has been a lot of discussion regarding inflation this month. Jay Powell, of the Fed, suggested that the US might need to start raising interest rates – in 2023!! That is a long time away in this high data world. But it was what raised the debate about whether inflation would increase structurally or whether it would be transitory.
Our view is that it will probably be transitory – remember that the inflation calculation is a percentage change on the same time one year ago. A year ago, most of the world was locked down and economic activity was severely impacted, so off a low base the inflation number does look high. The same Covid lockdown created supply blockages of numerous “widgets” – from lumber to computer chips. As demand has returned, supply has yet to catch up. We think it will. If inflation is contained, then interest rates will probably remain low – and even if there are increases (in 2023) they will probably be a gentle increase rather than a massive hike. All of this is good for equity markets.
Jacob Zuma
The news that a warrant of arrest has been issued for Jacob Zuma is very positive news for South Africa. I write this on Thursday (1 July 2021) and it remains to be seen whether he will go to jail or not.
This is an arrest for contempt of court. We haven’t got to the corruption charges yet, but the message is clear- you will be held accountable for your actions. And anyone who thinks that they are above the law, or protected by the faction, must be quaking in their boots. It shows that the judiciary has remained independent and is systematically upholding the law of the country.
It is still very early to know how this will play out, but for me it shows some green shoots of recovery. There is still so much work to do in order for the economy to get back on its feet. Youth unemployment is over 50% and that creates fertile ground for divisionary politics. We need economic growth to absorb the unemployment and until the government can stop fighting their internal battles and start focusing on the good of the country and apply the best decisions for the good of all South Africans, we still have a long winter to endure.
On balance, I think the news flow has been good for us. The JSE Allshare index doesn’t show it – we are down 2.3% for the month of June – the first negative month after 11 positive months. It comes on the back of a steep decline in the resource-based counters. Let’s wait and see what happens over the weekend, and hopefully July will be a solid month.
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.
June 2021 Monthly Comment
Inflation
There has been a lot of discussion regarding inflation this month. Jay Powell, of the Fed, suggested that the US might need to start raising interest rates – in 2023!! That is a long time away in this high data world. But it was what raised the debate about whether inflation would increase structurally or whether it would be transitory.
Our view is that it will probably be transitory – remember that the inflation calculation is a percentage change on the same time one year ago. A year ago, most of the world was locked down and economic activity was severely impacted, so off a low base the inflation number does look high. The same Covid lockdown created supply blockages of numerous “widgets” – from lumber to computer chips. As demand has returned, supply has yet to catch up. We think it will. If inflation is contained, then interest rates will probably remain low – and even if there are increases (in 2023) they will probably be a gentle increase rather than a massive hike. All of this is good for equity markets.
Jacob Zuma
The news that a warrant of arrest has been issued for Jacob Zuma is very positive news for South Africa. I write this on Thursday (1 July 2021) and it remains to be seen whether he will go to jail or not.
This is an arrest for contempt of court. We haven’t got to the corruption charges yet, but the message is clear- you will be held accountable for your actions. And anyone who thinks that they are above the law, or protected by the faction, must be quaking in their boots. It shows that the judiciary has remained independent and is systematically upholding the law of the country.
It is still very early to know how this will play out, but for me it shows some green shoots of recovery. There is still so much work to do in order for the economy to get back on its feet. Youth unemployment is over 50% and that creates fertile ground for divisionary politics. We need economic growth to absorb the unemployment and until the government can stop fighting their internal battles and start focusing on the good of the country and apply the best decisions for the good of all South Africans, we still have a long winter to endure.
On balance, I think the news flow has been good for us. The JSE Allshare index doesn’t show it – we are down 2.3% for the month of June – the first negative month after 11 positive months. It comes on the back of a steep decline in the resource-based counters. Let’s wait and see what happens over the weekend, and hopefully July will be a solid month.
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.