Picture: JSE
Picture: JSE

The recovery in financial markets towards the middle of 2020 was as brisk as the decline that preceded it in the immediate aftermath of the Covid-19 virus spreading across the world.

SA had one of the most severe lockdowns and the impact was seen directly in its financial assets from stocks to the bond market, which needed the Reserve Bank to restore order after a lack of liquidity pushed the 10-year yield to a record of more than 13%.

From highs in early January 2020 to lows in March that year, the JSE all share index slumped 37%. By late June, it had gained as much as 50%, after a rally that was mainly driven by an unprecedented amount of stimulus from central banks and governments in the developed world.

The S&P 500 in the US fell as much as 32% in 2020, losses that it quickly recovered to end the year with a gain of 16%. The JSE eventually ended with a 14% gain and has added about 10% so far in 2021.

About a year ago, the recovery, driven by a surge in demand for technology stocks as workers stuck at home turned to internet shopping led many an analyst to question how long such a rally, seemingly at odds with the real world in which economists were forecasting the biggest slump in a century, could last.

Financial markets have got out of whack with the economy. Something has to give,” the respected international magazine The Economist proclaimed in May 2020. It noted that investors had “shifted from panic to optimism without missing a beat”, and then gave plausible reasons why investors should be worried.

A correction never came and stocks continued to hit new records, aided by the production of vaccines and the promise of further stimulus after the election of Joe Biden as US president. So who would dare now predict the next act of this “stock market drama”, as The Economist described it then?

Attitudes towards SA have also been transformed since those days, with analysts talking up prospects not just for the rand but also the stock market, which has been given a boost by higher commodity prices. A year ago analysts were debating when the rand would hit R20/$, and now they are asking when it will get to R13/$.

Anyone who got swept up by emotion 12 months ago and thought it was a good idea to dump SA Inc, with the rand at over R19/$ and the JSE at its lowest levels since 2012, would have felt more than a little bit of pain. At times of such panic, managers offering sure riches in offshore markets tend to get traction, meaning their clients are left nursing the consequences of selling at the bottom while chasing expensive assets offshore. 

At the moment, SA’s miners are earning so much in foreign-exchange revenue, which will translate into high tax revenue and a smaller and a smaller budget deficit, that the government’s debt stabilisation targets may not seem so fanciful after all.

This comes even as ratings companies Moody’s Investors Service & Fitch Ratings this week expressed doubts that the government will be able to freeze wages. That has positive implications for SA bonds, which, at a yield of 9.05% for a decade, still offer some of the juiciest yields around.

Wednesday’s data showing US inflation jumped in April at the fastest level in more than a decade just highlights the danger and opportunities ahead for investors.

Bond yields, which move in the opposite direction to the price, jumped and US stocks opened lower as traders fretted about the possibility of rising inflation forcing the Federal Reserve to tighten policy and slow the US economy, reversing one of the powerful forces that have boosted SA markets.

What is not clear is whether this marks a structural shift or is just a reflection of a short-term boost in demand that has not been matched by supply from industries that saw supply chains disrupted by Covid-19 lockdowns.

If they were not so well rewarded, one would almost feel sorry for those paid to tell savers what the next step should be.


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