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July 2021 economic review

economic review by Graviton Perspectives
| Market Forces

During July, optimism over COVID-19 vaccinations and the reopening of economies was overshadowed by fears of the more contagious Delta variant of COVID-19 which in turn increased concerns that the path to “normality” may be bumpier than previously expected. Despite this, most nations ended the month on a positive note, including South Africa, surprisingly. China was an exception to this due to regulations in its education and technology sectors which weighed on the country’s results for the month. Developed and emerging markets continue to focus on vaccinating their populations, hoping to protect people from variants of COVID-19 such as the Delta variant.

Just another month in South Africa?

The month of July will be remembered for the worst looting and unrest in the country’s history. This  took place in KwaZulu-Natal (KZN) and parts of Gauteng during the week of 12 July. This insurrection was aimed at further undermining a fragile economy as well as the South African government. The riots followed soon after former President Jacob Zuma was incarcerated, now facing a 15-month sentence on contempt-of-court charges after failing to abide by an order to testify at the state capture commission. Fortunately, the rule of law prevailed in the end, with the government acknowledging the independence of the judiciary, despite political pressure to pardon former president Jacob Zuma. Reports indicate over 300 deaths and in excess of R50 billion worth of damage and lost economic output. Tax revenue will be used to assist in paying for the damages caused in the riots.

The country’s trade for the month of July was another record, supported by the strong demand for commodities globally.

On the pandemic front, South Africa moved to adjusted alert Level 3 on the 26th of July, as COVID-19 cases decreased. Many South Africans have accepted the need to be vaccinated, and it’s estimated the country is vaccinating on average around 220 000 people a day.


The US equity and bond markets delivered contrasting results in July as the S&P 500 recorded its sixth consecutive month of gains in July, while US Treasury yields fell to lows last seen in February. US equities finished the month with volatility due to concerns over COVID-19 cases, which called into question the sustainability of the economic momentum experienced of late.

The US 2Q21 GDP data was released on the 29th of July, showing US economic activity increased by 6.5% quarter-on-quarter as the country continues to normalise post pandemic. With the exception of the 33% quarter-on-quarter increase in US economic activity in 3Q20, following the bounce back from its worst-ever quarterly contraction in economic activity experienced at the start of the pandemic (2Q20 recorded -31,2% quarter-on-quarter), 2Q21 showed the strongest quarterly increase in economic activity in almost 20 years. Nevertheless, the 2Q21 rise was well below the 8.40% Dow Jones estimate for quarter-on-quarter.

The US Federal Reserve Bank (Fed) advised risks to the economic view remain the same as they continue to monitor economic progress, thus it was no surprise that the Fed decided to hold interest rates.

Regulations on the Chinese Technology & Education Sector

Private tutoring companies will be required to transform into non-profit institutions and will be restricted from raising capital on public markets or receiving injections of foreign capital, according to the new regulations set out by the Chinese government. Chinese authorities’ goals are to relieve the economic and mental burdens on students and families for education. As a result, share prices of Chinese online learning platforms plunged in the US and Hong Kong. Chinese regulations on its technology sector also continued to widen. For example, Chinese tech giant Tencent was forced to give up its exclusive rights to music. The regulations mentioned above resulted in a sharp sell-off and further weakened investor sentiment in China, which was the worst performing market index in July, recording a decline of 13.4% month-on-month.

South African investors were also affected by China’s new regulations. Tencent’s aggregate fell by 16.4% month-on-month in ZAR terms and since Naspers and Prosus’ biggest exposure is to Tencent, the Johannesburg Stock Exchange (JSE) listed stocks dropped by c.6% for the month.


The Eurozone economy officially emerged from a W-shaped recession in 2Q21, with a stronger-than-expected growth of 2.0% quarter-on-quarter. This strong performance comes on the back of COVID-19 restrictions being eased, consumers beginning to spend their built-up savings and major companies reporting stronger results. Eurozone business activity also rose at its fastest rate for 21 years in July, as the Purchasing Managers Index (PMI) reached 60.6 compared to 59.5 in June.

Vaccine roll-out accelerated with Spain, Italy and Germany all overtaking the US in terms of people fully vaccinated against COVID-19, thus boosting confidence that the rising cases of the delta variant will not lead to further lockdowns or restrictions on economic activity in the Eurozone.

Global Markets

Global equity markets notched up another positive month in July, recording gains for a sixth-consecutive month. The MSCI World Index returned 1.72% month-on-month in USD and 4.22% in ZAR. On a regional basis, US equities outperformed the rest of the market, European equities managed modest gains, while Japanese equities ended July at the bottom of its recent rage due to equity market sentiment dominated by increases in COVID-19 infections in Japan, recently exceeding 10 000 daily infections for the first time. The S&P 500 (US$) was up 2.38%, the FTSE (€) and Euro Stoxx 50(£) were up 0.53% and 0.75% respectively, and lastly the Nikkei 225 (¥) was down 5.23%.

Emerging equity markets continued to lag developed equity markets in July, with weakness in Chinese stock markets most notable. The MSCI Emerging Market Index returned -7.04% month-on-month in USD and -4.77% in ZAR.

Local Markets

Despite being in the news headlines for the wrong reasons in the month of July, the South African equity market managed to end the month higher, with the FTSE/JSE All Share Index closing at 4.18%, with mining companies driving the majority of returns.

Resources led the pack at 11.78% month-on-month, Industrials closed at 1.02%, and Financials lagged somewhat at 0.38% month-on-month. Domestically exposed property stocks and insurers experienced the most direct impact from the unrest and were unsurprisingly amongst the biggest losers for the month, contributing to the poor performance of the Financials sector. The SA Reserve Bank (SARB) left repo rates unchanged in its monthly meeting, as cash (STEFL) continues to give mediocre performances in a low interest rate environment (0.32% month-on-month). South African value managers (5.62% month-on-month) outperformed growth managers (2.74% month-on-month), while globally the opposite outcome occurred.

The ZAR witnessed a rollercoaster month due to the social unrest experienced, which in turn did no favours to the risk sentiment of the ZAR, and it was no surprise that it closed weaker against most major currencies in July. The ZAR lost as much as 3.02% against the sterling, followed by 2.39% and 2.38% against the USD and euro respectively, and lost 1.12% against the Japanese Yen.



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