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September 2020 economic review

| Market Forces

For the last five months global markets surged almost uninterruptedly. However during the latter part of September amid second wave fears, we saw global equities lose ground. The increased political uncertainty in the US, the end of the tech stock rally that drove the index in August, increased COVID-19 infection rate across Europe, and the general staggering of stimulus measures are all contributing factors to the September declines and increased volatility in the market. Going into the final stretch of 2020, these same factors could continue have wide-ranging implications for markets. However positive COVID-19 vaccine developments, dovish central banks and an ongoing economic recovery does provide us with glimmers of hope and the possibility that equity markets could push higher as the year closes.

Race to the White House

In the US, news of Justice Ruth Bader Ginsburg’s death was overshadowed by politicians wasting no time gearing up for the battle over who will succeed her. The current US election and the battle for control of the Senate have gained even more traction than usual in light of the pandemic and the inability of the Democrat-controlled House and Republican Senate to reach an agreement on additional fiscal stimulus to assist those who have lost their jobs. Whether the US passes further fiscal stimulus post-election could be important for the economy and markets in the months ahead. To add to the political uncertainty in the country, the first Presidential debate was a spectacle of utter chaos – with President Trump even declining to categorically state that he will accept the election result if he loses.

Fed shifts inflation targeting

Over the quarter the US Federal Reserve announced a shift to average inflation targeting. This would mean that inflation would be allowed to run above target for a while to compensate for periods of below-target inflation. An important consequence of this is that rates are likely to remain lower for even longer.

Second wave

Meanwhile as the winter approaches for the US, concerns over COVID-19 infections are on the rise against the backdrop of several countries in Europe experiencing its second wave of infections. UK minister Boris Johnson warned of stricter measures over the next six months if there is an increase in the rate of infections and France and Spain also began tightening up restrictions.

UK reducing stimulus support

In the UK, fiscal stimulus is being staggered off, with the most recently announced job support scheme being less substantial than the “furlough scheme”. The completion of the furlough scheme at the end of October is consequently likely to lead to a rise in unemployment. In Europe, however, sustenance measures for workers affected by Covid-19 have been prolonged.

SA moves to level 1 lockdown

President Cyril Ramaphosa’s announcement in September that we would entering level 1 of lockdown on 21 September was well received by the South African nation.  The hospitality and tourism sectors received even more good news as international travel is permitted from 1 October. However, Transport Minister Fikile Mbalula said South Africa will adopt a risk-based system to determine which countries South African citizens can safely travel to.

Dismal SA GDP figures

After delays caused by the coronavirus pandemic, South Africa’s economic data for Q2 (April, May and June) was released by Stats SA. GDP fell by 16.4% q/q (quarter-on-quarter), equivalent to an annualised growth rate of -51% and making it the fourth consecutive quarterly GDP decline for the country. During the same period, 2.2 million jobs were lost according to the Quarterly Labour Force Survey (QLFS). It should be noted that this period coincided with the beginning of the national lockdown at its highest level (level 5). Meanwhile, the Zondo Commission appears to be making meaningful strides to clamp down on corruption as it closes in on the parties involved in the Free State asbestos deal and the commission continues to apply pressure on former president Jacob Zuma to appear before the commission.

Repo rate remains unchanged

During the course of the year there have been a number of interest rate cuts by the SARB (South African Reserve Bank) and on 17 September speculation around further interest rate cuts was put to an end when Lesetja Kganyago, governor of the Reserve Bank issued a Monetary Policy Committee (MPC) statement that it would be keeping the repo rate at 3.5%.

Global markets

The S&P 500 was down 3.9% in US dollar (USD) and 5.6% year-to-date (YTD). September has historically been the index’s worst performing month over the last 30 years. The biggest detractors from performance are noted as being political uncertainty as the US election draws near, the end of the tech stock rally that propelled the index in August, and the Federal Reserve showing no signs of adding further stimulus to the financial system. The FTSE 100 was down 1.7% (USD) and -19.9% YTD, although European markets in general have been under pressure amidst concerns over the COVID-19 resurgence in cases.

The MSCI World Index returned -3.6% (USD) and -5.1 (ZAR) vs its emerging markets counterpart, the MSCI EM Index, which returned -1.8% (USD) and -3.3% (ZAR). Emerging markets were bolstered by strong performing Asian auto manufacturers and semiconductor companies.

Local markets


During September local equity markets were down for the second consecutive month, falling along with global markets. The FTSE/JSE All Share Index was down 2.2% for the month and down 4.9% YTD, with domestically exposed counters, such as banks and retailers, actually performing the best. On a sector basis, Financials returned 3.4% for the month, while Industrials returned -1.7%.  After quite a strong run thus far in the year, Resources gave back 3% at the end of September. The ALBI fell by 0.05% and the STeFI returned 0.35%, while listed property had another significant negative month, returning -3%.

Despite the dollar strengthening against most currency pairs, the rand managed to finish the month stronger relative to most currencies, as it closed 1.6% stronger versus the dollar, 3.5% relative to the euro and 5.2% stronger to the sterling.

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