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Another Rollercoaster Year – 2021 year-end note

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2021 year-end note

After the shock of 2020, 2021 can best be described as a frustrating rollercoaster ride. COVID, by its very nature, has been complicated to manage, leading to a very unpredictable environment and volatility in most facets of life.

We send our condolences to all who have suffered losses through this terrible pandemic. If there is any positive to hold onto, it’s that the world understands COVID far better today and is implementing more rational strategies to deal with it.

In this 2021 year-end note, we list important local and global investment highlights and round off with an inspiring Investonline update.

The SA Investment market continued to be volatile

The JSE All Share Index took off like a rocket at the start of the year (up 12% in the first 2 months) as global central banks flooded the market with cash to boost economies. But this quick “sugar rush” ended quickly and the JSE stumbled sideways for the rest of the year as it grappled with continued uncertainties around economic recovery.

SA Politics remain a shambles

The ANC lost its national majority in the municipal elections, leading to more coalition governing. Although this may add important “checks and balances”, it’s likely to lead to more conflict and mismanagement.

Ramaphosa must now be more at risk of being recalled by the ANC after the poor election results.

The ANC’s inability to pay its own party staff further exposes their general poor management style that manifests across the country.

The NPA’s “Investigating Directorate” head, leading the corruption unit, resigned, citing a lack of skills in the department.

The “Land Expropriation” bill failed to obtain a two-thirds majority to pass. The risk is that a more radicalised version is drafted to obtain support from the EFF rather than the DA.

The SA economy is desperate for structural reform, not austerity

The debt burden has been temporally eased with the fortuitous commodity boom raising an unexpected R128bn revenue and reducing our debt to 70% from 80% of GDP.

The riots in July slowed 3rd quarter GDP growth to 3% (year-on-year) and should reduce full year GDP growth to 5.1% from previously forecast 5.5%. But minor growth forecasts of 1.8% and 1.6% for 2022 and 2023 are a major concern.

Low growth will push unemployment (34.9%) higher. The expanded definition – including people who were available for work but not looking for a job – now stands at 46.6%.

The new Finance Minister continues to push an austerity agenda to control spiralling debt, but with no meaningful structural growth reforms, we will not reverse the high unemployment and stimulate much needed economic growth.

Inflation is forecast to rise further to 5.6% in November, resulting in the market anticipating interest rates to rise 2% over the next year.

The low adult vaccination rate of 42% is a problem as it hinders attaining a national ‘herd immunity’. This could further restrict the country’s economic recovery.

Eskom remains a major concern with fragile operations, internal corruption, sabotage, and the need to raise electricity prices 20% in 2022.

The Rand weakening again

The Rand’s strengthening in June to 13.5 to the US Dollar, reversed as the abnormally high trade surplus declined with a topping out of “sky-high” commodity prices. The Rand has subsequently retraced to a more reasonable 16.0 to the US Dollar, but we are still of the opinion that a fairer fundamental value is 17.5.

Soaring Global Markets despite many underlying concerns

The world MSCI Index is up 18% year to date in US Dollars, driven by overvalued technology shares and the injection of $16 Trillion stimulus from central banks.

Global inflation – is all the talk

With $16 Trillion injected into global developed economies and supply chain disruptions, global inflation is soaring, with the US now at 6.8%. The issue is whether this is temporary or more sustained. Research shows that the inflation surge is largely driven by supply chain disruptions, which should correct itself and the spike in inflation will be temporary. This is what global markets currently believe, meaning material interest rate increases will not take place. However, the risk is that excess monetary stimulus will sustain inflation, which would be negative.

Political unrest is increasing as the wealth gap widens, questioning the merits of Democracy versus Authoritarian systems.

Crypto Currencies seesaw as developed governments seek to regulate them, and China bans them.

Technology monopolies (Facebook, Google, etc) remain under the spotlight as governments grapple with how to loosen their market dominance.

China propels its Common Prosperity philosophy and places restrictions on certain social media and technology activities.

COVID keeps politicians spinning as they battle to manage the pandemic rationally.

Prosperity’s risk management remains impeccable

Prosperity’s risk management remains impeccable

The Prosperity Worldwide Flexible Fund of Funds is a conservative fund with an emphasis on capital preservation. Since inception (Sep 2014) the fund has returned an average 8.9% p.a. (net of fees). The fund is well suited to investors that want offshore exposure and a steady investment return.

2022 should be a more stable year

As we finish another emotional rollercoaster year, we are optimistic of a more stable year ahead as the world understands and manages COVID more responsibly.

Global inflation is likely to remain the major investment market concern, but this is no surprise and central governments are managing this very sensitively.

Although SA has continued headwinds into 2022, most negativity is already priced into SA markets, with far more upside than downside investment potential.

Investonline had another good year

Thanks to our loyal clients, the hardworking team, and the greater innovative services, Investonline has had another year of strong growth. To support this growth, we employed a new Client Portfolio Manager, and we are currently seeking two further appointments, which will increase the team to twelve.

Learning (Wisdom) remains a cornerstone of our success, as two Client Portfolio Managers completed their honours degrees in financial planning and a further advisor qualified as a CFP (Certified Financial Planner).

We look forward to 2022, as our improved systems add further value to our clients and our partnership with clients continues to strengthen.

We wish you a blessed festive season and a prosperous new year.


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