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Ok. Got itLocal bonds strengthened as third-quarter GDP growth numbers showed more resilience than anticipated.
December started on a positive note. Q3 GDP figures of +13,5% (q-o-q, not annualised) surprised to the upside as activity rebounded in lockstep with the reopening of the economy and progressive easing of lockdowns. While base effects played a meaningful role, significant exports provided a strong tailwind for the rebound and drove the current account to record the highest quarterly surplus in decades. The fourth quarter is unlikely to maintain this momentum, as key trading partners introduced greater lockdown restrictions and South Africa introduced adjusted level three restrictions.
Local bonds strengthened as third-quarter GDP growth numbers showed more resilience than anticipated, further buoyed by global risk on sentiment and a strong show from the local currency. The All Bond index returned +2,4% in December, while the rand appreciated by 5,0% against the US dollar. This brings the Q4 figures to +6,7%, with 12-month returns at +8,7%.
Local markets ended the quarter on a strong note, lifted by improved sentiment for risk assets as vaccines became available and a weaker US dollar provided a tailwind for emerging-market currencies. This supported cyclical sectors and domestically exposed companies and those hardest hit by lockdown measures. Despite the chaos and volatility, equities ended the year more strongly than they started.
The FTSE/JSE All Share gained 9,8% over the last quarter, helping the asset class end the year up 7,0%. While technology stocks and resources set the tone for the year, the fourth quarter was most beneficial for cyclicals. Noteworthy returns were recorded by the financials sector, which gained 20,1% in Q4. Banks gained as activity picked up and an upgrade in credit ratings for the major banks from credit ratings agency Fitch confirmed the sector remains well-capitalised. Domestic counters led the fourth-quarter charge, with the Small Cap index returning a healthy +21,9% relative to headline numbers from the Mid Cap stocks (+13,7%) and Top 40 indices (+8,9%).
The property sector continued to claw back performance in December, gaining 13,7%. While the fourth quarter records property as one of the standout performers, delivering +22,2%. However, the embattled sector still suffered over 2020, ending the year down -34,5%.
Enter 2021 and the country battles increasing Covid-19 cases and hospitalisations again, as a new variant of the virus proves more contagious. A vaccine procurement process is underway but will not help with the more immediate challenges. South Africans hope the process will start here soon.