You are Here > Home > My Investments > Reflecting on the year that was

Reflecting on the year that was

Jan 5, 2022

Victoria Reuvers, Managing Director at Morningstar Investment Management South Africa, looks at how financial markets performed in 2021.

Reflecting on the performace of financial markets in 2021As a runner, the change in seasons gives me time to reflect. Autumn is my favourite season, and always reminds me that change is the only constant. Winter reminds me of all that’s lost, the hardship of life for so many, and the brevity of daylight hours. When we move to spring and on to summer, I rejoice in the new life, new colours, and new daylight hours that come with this season, and am reminded of how the cycle continues.

Investing also goes in cycles

If we reflect on the past year of investing, it too has experienced its seasons and cycles.

At face value, it appears as though markets have performed well, however, broadly speaking there have been some bad landmines that simply could not have been avoided by all investors.

2021 was also by no means a dull year – global bonds bottomed out, there was the Evergrande debacle, and Chinese tech stocks slumped, with the effects felt in all emerging markets.

SA equities are making a comeback

After a seven-year drought of returns for domestic equities, the past 18 months have seen a strong rebound in South African equities, with broad-based returns across the sectors.

While 2020 saw resource shares (mainly platinum and diversified miners) performing well, 2021 has seen a rotation into more unloved areas of the market. The strongest performing areas in 2021 were what we would term “SA Inc.” shares: banks, retailers and select industrial shares.

What has caught many investors by surprise this year, has been the sharp fall in the Naspers and Prosus share price.

Market darling Naspers, combined with Prosus (its European-listed counterpart) account for almost 20% of the All-Share Index. A combination of concerns regarding the Chinese government’s interference in their market with regards to the new regulation for select tech companies, alongside the disappointment surrounding the Naspers Prosus share swap and/or company restructure, has provided strong headwinds for these shares.

Fixed income not so ‘fixed’ anymore

Fixed-income managers have not had an easy year, with 2021 not being the year for income assets. What had appeared to be a stable (and dare I say “boring” asset class) was no more, as 2021 saw fixed-income assets experience a lot of volatility.

SA government bonds bamboozled

SA government bonds remain perplexing. We are seeing good value in this asset class, with yields of around 9.5%. This is almost 5 percentage points ahead of cash and 4 percentage points ahead of inflation, which is unheard of in global markets.

Yet despite this attractive yield, foreigners have not been investing in our bond market to the levels they have previously. As a result, this asset class is generating a decent yield for investors but has been subject to market volatility this year due to the lack of foreign support.

Cash is still out in the cold

We see little room for holding cash in portfolios. Not only is the nominal yield low (around 4%), it is in fact offering a negative real yield, given that inflation is close to 5%.

Global markets continue to outperform

While value shares and unloved sectors (such as energy and UK equities) have certainly rallied and have been solid contributors to portfolio performance, the tech stocks in the US have reached stratospheric levels (both in terms of performance and in price).

In our opinion, this sector is starting to carry a striking resemblance to the tech bubble of the late 90s.

Firstly, the market is trading at extreme valuations and is experiencing new IPOs at a rate last seen in the late 1990s. As they say: if it walks like a duck and talks like a duck…

We would prefer to be cautious at this point. We remain materially underweight US large-cap tech shares.

Despite emerging markets selling off sharply on the back of the Chinese government’s interference in capital markets and the restrictions and regulations placed on their tech companies, we are seeing good pockets of opportunity in emerging markets.

While SA fixed-income managers had a tough time in 2021, it was even worse for global fixed-income managers.

Global bonds were one of the worst performers in 2021. With starting yields at low levels and bond yields rising throughout the year, this has led to bondholders experiencing meaningful capital losses.

Looking forward to 2022

In the wise words of Warren Buffett: “Be fearful when others are greedy and greedy when others are fearful.”

There is much exuberance, easy money and excitement in certain areas of the market. This level of optimism and crowding makes us “fearful”.

There will be good-news stories for companies and sectors that will be extrapolated into the future with investors prepared to pay extreme prices just to own these golden companies.

Remember that “Price is what you pay, but value is what you get” – another valuable lesson shared by Mr. Buffett. Now is the time to be vigilant and to ensure that you are getting value for what you buy.

You may hear some commentators saying that markets are expensive and now is not the time to be invested, while others say that things will just keep going up. To this we would say: there is never a “right time” to invest. The key is just to be invested and to remain invested.

This post was based on a press release issued on behalf of Morningstar Investment Management South Africa.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

Listen: Investing in farming

“It is not only a crowdfunding platform, but a crowd value creation platform ‒ an ecosystem of partners rather than a conglomerate owning everything.” Farming is becoming an increasingly popular asset class. Crowdfunding for farming ticks many boxes as a “good”...

Five ways to boost your income and financial knowledge

Angelique Ruzicka shares five ideas for how you can improve your financial knowledge and possibly boost your income. Boosting your income, especially during a pandemic, can feel nigh on impossible, especially when costs are going up and you’ve been told there’s no...

Financial tools to keep you on track in 2022

Advances in technology mean that it’s now so easy to keep track of your finances and achieve savings goals, using smartphone apps, websites, and other online financial tools, says Angelique Ruzicka. If you’re still using Excel or some other rudimentary means to keep...

What will the rand do in 2022?

Ryan Booysen, MD at DG Capital Forex, stares into his crystal ball to predict where the rand will go in 2022. The rand ended 2021 on the back foot, after the Omicron announcement and subsequent global kneejerk reaction of isolation and red-listing the country. And...

SARS gets serious over non-compliance

Jashwin Baijoo, Legal Manager, Africa Tax and Compliance at Tax Consulting SA, warns all non-compliant taxpayers that SARS could be coming for them sooner rather than later. In media statements in recent months, the South African Revenue Service (SARS) has made clear...

Should I use my retirement lump sum to settle my debt?

A question that I often receive is whether it's a good idea to use one's lump sum on retirement to pay off short-term debts, such as car debt or one's credit card. For example, Ntombise recently wrote to me: “I have just retired from work and expect a lump sum...

Immediate access to retirement funds unlikely

Retirement reform paper calls for comment but no move on immediate access. Retirement fund members hoping to access their retirement funds for urgent financial relief will be disappointed by the retirement reform paper issued by National Treasury last month. In the...

The 2022 survival budget

As if the last two years were not tough enough, there is no silver lining awaiting us in 2022. In 2021 we absorbed further fuel-price increases, a 15% hike in electricity costs, and an interest-rate increase of 25 basis points – and this is only the start. It is...

Using critical illness insurance to supplement medical cover

Many financial advisers are using life products to supplement medical costs. While current legislation does not allow for cover like critical illness insurance to be marketed as a product to cover medical costs, for most policyholders, that is exactly what it is used...

Savvy ways to use your bonus

Many companies are cash strapped due to the impact of Covid-19, but if you are one of the lucky few who got a bonus or windfall this year, it will be tempting to spend it to celebrate surviving another tough year. However, money experts recommend being a bit cautious,...

Pin It on Pinterest

Share This