MSM Property Monthly: December 2020

DEAR INVESTOR,

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Performance

Welcome to 2021 and all the best for this year. We followed up Novembers’ stellar performance of the listed property mandate of 21.5% with a 13.71% return for the month of December, beating the ALL Property Index at 13.27% as we ended in the Top 5 out of 40 property funds in South Africa. The general equities mandate yielded 4.2%, beating the ALL Share index at 3.72%. The risk-on sentiment, supported by the Biden win and vaccine news, pushed global markets up as the S&P500 rose by 3.84%, ending the quarter at 12.5% (reaching all-time highs). Europe witnessed higher markets as the Eurostoxx 500 added 4.32%, ending the quarter being up 17.20%. Similar gains in the East were seen as Chinas’ CSI 300 Index and Japans Nikkei 225 Index closed the year up 5.89% and 4.87% respectively for the month. The MSCI Emerging Markets returned 7.35% for the month and 19.70% for the quarter. Even though the month saw the US Dollar continue with its decline, emerging markets, Gold and Bitcoin (the cryptocurrency breached $20 000.00, reaching all-time highs) were the recipient of the flows from the Dollar.

Global Market Themes

With the falling Dollar, American states went into lockdown as the Covid-19 death rate reached 3000 per day (the highest in the world). With such high numbers, several doubts arose regarding the sustainability of the American economic recovery as disappointing jobs numbers came out. Even so, the unemployment rate has improved and fallen to 6.7%. The Federal Reserve supported the worrying sentiment and spoke to the patchy economic recovery due to the damage cause by Covid-19. The Fed asked for both the democrats and republicans to work on another stimulus which the economy needed. We also saw the decline of oil in response to the negative economic news and outlook for the American economy. Not only that, OPEC met to discuss the cutting of 7% of global oil output, which they agreed upon.

The weakness in the Dollar was supportive of European markets as they received flows of $1.7 trillion as part of the value rotation from growth stocks. European markets were also boosted by the EU approving a $2.2 trillion stimulus plan backed by joint debt and cash as the zone’s biggest economy, Germany, saw exports rise less than expectations which worried Brussels. The EU and UK finally completed the arduous Brexit deal, which had been held up by fishing rights. The pound improved as the UK became the first western country to approve the Pfizer vaccine. Asia saw similar gains as funds flowed into emerging markets with China releasing strong manufacturing numbers, the strongest in a decade. China eased the restrictions against Australian coal, a sign of easing in tensions in the trade war between the two nations, mentioned before in our previous newsletters.

​South African Themes

Global managers sought emerging market stocks, pushing the JSE higher whilst President Ramaphosa imposed stricter measures to counter the second wave. The country officially entered the second wave as infections exceeded 6000 per day. The President pushed on with the step-aside policy at the ANC’s NEC committee meeting as part of his pledge against corruption in the state and party. With the party, Ace Magashule whose been charged with corruption allegations, will appear before the parties integrity commission and to appear before a court judge in the first quarter of the year. The presidents economic plan started bearing fruits as business confidence rose unexpectedly even though October retail figures decreased by 1.8%. The manufacturing PMI numbers came in at 52.6 adding to the three consecutive months of expansion. The current account for GDP surged to 5.9% versus -2.91% for third quarter. All of this economic activity culminated in an increase of 66.1% in the third quarter from -51.7% in the second quarter, beating estimates of 62.9%. The main drivers of the activity were household consumption and net exports (driven by commodities). This has changed the outlook for GDP which previously was -8.1% for 2020, being increased to -7%. Expectations for 2021 are higher at 3% due to the rebound expected.

​Property

As the great rotation pushed through December, we printed 13.71% versus 13.27% for the index. The positions that contributed the most to the months’ absolute performance were Redefine Properties Ltd (+40.51%), NEPI Rockcastle PLC (+18.68%) and Growthpoint Properties Ltd (+9.60%). The largest detractors from the months’ absolute performance were Liberty Two Degrees Ltd (-17.95%), Investec Australia Property Fund (-5.37%) and Stenprop Ltd (-0.79%). This correlates with the mall activity seen where small regional centres lead the recovery with super regional centres lagging the most in recovery.

We ask you to be safe and feel free to contact us with any questions and we appreciate your support and confidence in us, in being able to manage your wealth.