VIDEO: Market Snapshot December 2020
Our Market Snapshot provides an overview of key events that influenced financial markets over the course of December 2020.
The year ended on a buoyant note in December, as investors shrugged off the rising “second wave” of Coronavirus infections globally and bought up riskier assets, pushing many equity markets to record highs. Investor sentiment was boosted by the start of vaccine rollouts across several countries, the US Congress’ agreement of a fourth stimulus package and the UK and EU’s finalisation of a Brexit deal, among other factors. South African markets were carried by the bullish mood despite the imposition of tighter lockdown conditions, helping the FTSE/JSE All Share Index to end in positive territory for the year.
Looking at global equity market returns (all in US$), the MSCI All Country World Index returned 4.6% for the month and 16.3% for the year as a whole. Emerging markets significantly outperformed developed markets, with the MSCI Emerging Markets Index delivering 7.4% and the MSCI World Index returning 4.2% in December. The Bloomberg Barclays Global Aggregate Bond Index (US$) returned 1.3%, while the EPRA/NAREIT Global Property REIT Index (US$) produced 3.8%.
The spot price of Brent crude oil closed 8.8% higher from the previous month at around US$52 per barrel. Precious metals gained ground: gold rose 6.6% for a total gain of 24.3% for the year, and palladium was also a big winner in 2020, up 23.7%. Industrial metals were mixed in December as copper rose 0.9% but aluminium fell 1.8% and zinc was down 3.1%.
In the US, consumers and investors took heart from President-Elect Joe Biden’s Cabinet choices, which partly signalled a return to “safe” Obama-era policies and a vigorous stance on combatting the pandemic. The passage of another round of fiscal stimulus measures, combined with the start of vaccinations country-wide, led many to expect a faster economic recovery.
At its 16 December meeting, the Federal Reserve left interest rates unchanged but pledged to keep them at the current low levels until the economy recovered. Notably, it also raised its forecasts for GDP growth for the next three years: to -2.4% for 2020 from -3.7% previously; to 4.2% from 4.0% in 2021; and to 3.2% from 3.0% in 2022. The Fed also reported it expects the unemployment rate to continue to improve, falling to 6.7% for 2020 (compared to 7.6% previously). The Fed sees unemployment of 5% in 2021 (5.5% previously) and 4.2% in 2022 (4.6% previously).
US equity markets hit fresh record highs in December as the S&P 500 returned 3.8% for the month and 18.4% for the year as a whole, while the Dow Jones Industrial 30 delivered 3.4% and 9.7%, respectively, and the technology-heavy Nasdaq 100 produced 5.1% in December and a stunning 48.9% in 2020 (all in US$).
In South Africa, a strong resurgence of the Coronavirus locally led to tighter lockdowns, but global risk-on investor sentiment prevailed, putting the local bourse in positive territory for the year. The country closed 2020 with over 1 million Coronavirus infections and 30,000 deaths, the highest on the African continent. Amid a dearth of detailed government plans to acquire and roll out one or more vaccines, market participants worried over the impact of possible rollout delays until mid-2021.
In more positive news, SA GDP growth for Q3 2020 surprised to the upside at 13.5% q/q (66.1% annualised) compared to the 13.1% expected, and Q4 consumer confidence recovered to -12 pts from -23 pts in the third quarter. The South African Reserve Bank (SARB) is now projecting an 8.0% contraction in the economy for 2020, improving to 3.5% growth in 2021 and a 2.4% expansion in 2022. Inflation also remained subdued, with headline CPI slowing to 3.2% y/y in November from 3.3% y/y in October.
Other good news saw Fitch upgrade South Africa’s largest five banks' National Long-Term credit ratings to 'AA+’ from 'AA', which it said reflected an improvement in their creditworthiness relative to the best credits in the country. And in another important development, the courts handed the SA government a win in its wage battle against unions, saying that no existing collective agreement with fiscal implications can be enforced if it is not backed by National Treasury.
However, December news also showed that South Africa’s manufacturing production fell by 3.4% y/y in October versus -1.9% in September, and the Purchasing Managers Index (PMI), which indicates business activity, edged down to 50.3 pts in November from 51.0 pts in October. It is, however, still above the key 50 point level that separates expansion from contraction.
The FTSE/JSE All Share Index delivered 4.2% in December, led by strong gains in Listed Property and Resources shares. This meant that the ALSI ended 2020 in positive territory, returning 7.0% after losing 30% at its low in mid-March. For the month, Listed Property (All Property Index) was the star performer, returning 13.3%, while Resources shares (J258 Index) delivered 9.5% and Financials (J580 Index) produced 8.3%. Industrials (J257 Index) were in the red with -1.0%.
In 2020, offshore-focused sectors produced the strongest returns, with Resources at 21.2% and Industrials at 12.0%. Locally-oriented sectors were in the red as Financials delivered -19.7% for the 12 months and Listed Property -34.5%.
Finally, the rand gained good ground against all three major global currencies in December, due to ongoing US dollar weakness and the stronger appetite for risk assets, hitting a high of around R14.6/USD during the month and near levels last seen in early 2020. The local currency was up 4.6% against the US dollar, 2.6% versus the pound sterling and 2.4% against the euro.
UK and Europe
In the UK and Europe, news was dominated by the conclusion of a last-minute Brexit deal after over four years of negotiations, and the start of the distribution of vaccines in both regions. In England, lockdown restrictions were tightened sharply as a new, more infectious variant of Covid-19 was identified, while Wales, Scotland and Northern Ireland also introduced various new tightening measures. These moves led to further downgrades in UK growth projections. The Bank of England kept its main interest rate unchanged at its meeting on 17 December, citing high uncertainty around growth given December data showing the country’s tenuous Q3 recovery nearly grinding to a halt.
Meanwhile, the European Central Bank (ECB) projected that the Euro area’s real GDP will contract by 7.3% in 2020, rebounding to 3.9% growth in 2021 and 4.2% growth in 2022. The ECB left interest rates on hold at its 10 December policy meeting, but expanded certain other monetary measures to boost regional economies.
For the month, the UK’s FTSE 100 returned 5.8%, the German DAX 6.1% and France’s CAC 40 3.1% (in US$). In 2020, the FTSE 100 was in the red with a -8.7% return, while the German bourse delivered 13.7% and French stocks produced 3.6%.
China and Japan
Asian bourses hit record highs in December amid optimism over accelerating growth in the region on the back of recoveries in consumer demand and business activity. Chinese industrial output rose 7.7% y/y in November, and Japanese Q3 GDP growth of 22.9% y/y showed a strong recovery underway, even as the government announced a new US$700bn stimulus package. There were even gains for Hong Kong’s Hang Seng despite harsh jail sentences given to several high-profile pro-democracy activists under the territory’s new security laws. These new laws, introduced earlier in the year, helped keep equity returns for 2020 nearly flat (at only 0.2%) as investors feared further negative repercussions for business activity.
In China, the People's Bank of China (PBoC) left its benchmark interest rate steady at its meeting on 21 December amid the pickup in the economy. The Chinese economy grew by an annualised 2.7% q/q in Q3 2020, with its Manufacturing PMI hitting a decade-high 54.9 in November. Turning to Japan, at its policy meeting on 18 December the Bank of Japan also kept its policy interest rate on hold amid the ongoing recovery, but extended its special Covid-19 financing programme for businesses by six months.
In December, Japan’s Nikkei 225 delivered 5.0%, the MSCI China 2.8% and Hong Kong’s Hang Seng 3.4% (in US$). In 2020, the Nikkei returned 24.5% and the MSCI China 29.7%, while Hong Kong stocks were subdued with a marginally positive 0.2% return.