Financial markets responded negatively to the news of the new Covid-19 variant, with a flight to safety and a negative impact on equity markets. Policymakers face tough choices.
Local municipal elections saw historically low voter turnout, but delivered greater support for smaller, independent and newer parties. With fewer outright majorities, the country now has more coalitions or formations in place at local government level than ever before. A vote for change, but one that will require untested levels of collaboration. In another vote for change, South Africa secured about R130 billion of concessional climate funding at the COP 26 climate summit from developed market partners to advance the country’s energy transition.
The Medium-term Budget Policy Statement confirmed a revenue overrun of R120 billion relative to Budget 2021 estimates. Alongside the restatement of GDP, this delivered much improved fiscal metrics, broadly in line with market expectations. The greatest uncertainty remains on the expenditure side, including the outcome of further public sector wage talks, state-owned enterprise financial support and the shape of future social support measures. The improved picture and a commitment to fiscal consolidation helped local markets gain in the aftermath, although the headwinds from global bond yields erased much of this windfall by month end. The Reserve Bank increased interest rates by 25 bps, in a split vote of 3:2. The Monetary Policy Committee emphasised a preference for a gradual interest rate hiking cycle, but that near-term inflation risks are to the upside.
The All Bond Index gained by 0,7% in November, bringing the returns over the year to 5,6%. The rand weakened by about 4,4% against the US dollar. Despite a meaningful drawdown on new variant concerns, local equity markets bounced back, with the FTSE/JSE All-share Index gaining 4,5%. Large-cap counters and rand hedges outperformed, with notable returns from Richemont (26,4%). The resources sector rebounded by 6,8%, led by the precious-metals sector (10,2%), in part a beneficiary of deal announcements. The property sector gained 2,2% over the month.
Several countries placed restrictions on travel to and from South Africa in the wake of the Omicron identification, dealing the travel, leisure and services sectors a devastating blow. As the year draws to a close, this final month may yet bring more surprises. In the meantime, stay safe and healthy and let’s all support local where we can.
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