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December 2021 Update

Making the News

Global financial markets in 2021 were mainly influenced by:

  1. The Covid-19 pandemic and the impact of new variants (i.e., Delta, Omicron) on GDP growth across the globe,
  2. Increasingly high inflation in developed markets, particularly the US which reached levels last seen in 1982 (latest CPI print at 6.8%),
  3. The likely bankruptcy of the Evergrande Property developer in China which caused negative sentiment towards China and other emerging market assets.

On the South African front, we highlight some of the welcome tailwinds seen in 2021 below:

  1. The upward revision of between 9.1% and 11% in South Africa’s GDP for the years 2011 to 2020. The estimate for 2020 GDP is recorded at R5.52 trillion, 11% larger than the earlier estimate of R4.97 trillion.
  2. While 2021 Q3 GDP came out at -1.5%, it is expected that GDP growth for the full 2021 calendar year will end around +5%, buoyed by strong commodity demand and a robust agricultural sector, with the current account recording its strongest surplus in decades.
  3. In December, Fitch Ratings unexpectedly upgraded its outlook on South Africa’s credit rating to Stable.
  4. And lastly, there were significant structural reforms made during the year:
    • Private companies being able to produce up to 100MW of power,
    • Privatising South African Airways through a 51% sale,
    • Action being taken on corruption-accused persons (i.e., Zweli Mkhize, Ace Magashule),
    • Former president, Jacob Zuma, being sentenced to jail.

Market Commentary

As can be seen in the table above, all major asset classes delivered positive returns in December. The best performing asset class was SA listed property, up almost 8% in the month, with the worst performing asset class being SA cash, ending the month up only +0.3% (-0.2% behind inflation).

Global developed markets, boosted by liquidity, continued to power ahead during 2021. In hard currency, the MSCI World Index was up 22.3% (32.4% in ZAR) driven largely by the US, with the S&P 500 up 28.7% (39% in ZAR). Furthermore, the MSCI Emerging Markets Index declined -2.5% for the year but fortunately remained positive in Rands over the year, up a modest 5.9%. In our local market, the FTSE/JSE All Share Index returned +29.2% for the year, despite Naspers declining c.-18%. Notable stock performers during the year were MTN (+184%), Richemont (+88%), Anglo American plc (+46%), and Sasol (+93%) on the local bourse.

SA listed property was not only the best performer over the month but also over the year as the asset class returned c.+37%. Despite the strong performance from the asset class, it has not recovered to previous highs since its sell off in March 2020. The main driver of 2021’s performance was the recovery seen in the retail sector, helped by less lockdown restrictions during the year compared to 2020. Local storage and industrial sectors have done reasonably well during the year but less so when compared abroad. The main drag and concern for listed property is in office space given the excess supply in the sector and the uncertainties around the work-from-home phenomenon.

SA bonds delivered a reasonable return of +8.4% (+2.9% ahead of inflation) while SA cash returned only +3.8% (-1.7% below inflation) during 2021. South African government bonds were the top-performing sovereign debt market in the world last year and continue to offer attractive yields, especially longer-dated bonds. While the SARB is likely to increase rates this year, short-term interest rates remain low, and we continue to caution that investors in money market and income funds should expect more muted returns going forward.

Impact on Our Portfolios

It has been a very good month for the CWM models across the risk spectrum, especially those with an allocation to SA listed property. Key models that benefitted from this exposure were CWM Retirement Growth and the Regular Income models, all outperforming peers by over +0.4%. In addition, the full 2021 calendar year has been an exceptional period for the CWM South African models in absolute and relative terms. Similarly on the global front, the CWM global models performed well against peers in December, over the past year as well as since inception.

Looking Forward

Global Outlook:

As inflationary pressures have been building, the debate whether inflation is “transitory” or more persistent continues. Irrespective of one’s view, central banks around the world have begun tightening their monetary policy, which is expected to continue in 2022. This hawkish shift is a clear response to concerns that central banks can no longer maintain excessively easy monetary policy in the face of surging inflation and preserve their credibility. The timeline for monetary policy normalisation will vary widely across developed and emerging market economies depending on inflationary pressures, with many emerging market economies already quite advanced in their tightening cycles.

In addition to the inflationary pressures, the effect of Omicron on demand and supply is another factor that will be considered by the US Fed. News of this variant resulted in a demand shock causing a slowdown in services consumption and a supply shock causing border closures and ultimately hindering trade. Although countries such as Germany and the UK became more stringent on their lockdown restrictions, we do not expect the introduction of this variant to cause major changes to US policy and therefore still expect tapering to occur in 2022 followed by US rate hikes during the year as well as in 2023. This is because the vaccines still show a high efficacy rate and symptoms experienced by those infected with the Omicron variant have proven to be far milder than other variants.

With these two factors in mind, US monetary policy action will remain top-of-mind into 2022 as the true nature of this cost-push inflation spike becomes evident. This is likely the most significant determinant of future equity (and bond) returns as it will determine global investor risk appetite, and the longevity of this cyclical economic expansion.

South Africa Outlook:

Some of the tailwinds which the SA economy experienced during 2021 may begin to fade this year, with growth expected to revert to around 2% in 2022 and 2023. The structural challenges of elevated levels of unemployment, corruption and mismanaged SOE’s (particularly Eskom and Transnet) are expected to continue to hamper stronger economic growth.

Despite this, we view SA equities as being attractive on a relative basis. In the context of many developed markets trading at all-time highs and at elevated valuations, SA equities offer a more attractive risk-reward profile, particularly relative to the US, as well as relative to other asset classes. We feel that many of the above-mentioned risks have been largely priced into SA equities.


We think investors should moderate their return expectations for 2022, in comparison to the very strong returns delivered in 2021, as most equity markets around the world have reached new highs and inflation has surprised significantly on the upside in developed markets. These factors make it more likely that central banks will continue to raise interest rates and tighten monetary conditions, creating an environment less favourable for equity investors.

2021 has been a very successful year for our clients’ portfolios on both an absolute and relative basis. We would like to thank you, our clients, for your support and engagement during this past year. Our model portfolios remain well diversified and are well positioned to achieve attractive upside into the future.

November 2021 Update
January 2022 Update