Growth assets drive outperformance

Despite concerns about a new Covid-19 variant and an upward shift in structural inflation, 2021 proved to be a good year for growth assets – most notably equities and property.

The pandemic once again dominated headlines as global case numbers more than tripled through the year to around 300 million. While the emergence of the Omicron variant initially weighed on risk sentiment, optimism soon returned on expectations that Covid-19 would move from a pandemic to a more manageable endemic state.

Meanwhile, it became clear that inflation was stickier than initially thought, and investors began preparing for higher interest rates and the end of the US Federal Reserve’s stimulus programme.

Against this backdrop, we saw a large divergence in equity market returns across the globe.

Developed markets delivered strong returns of 32% in rand terms, while returns in emerging markets were muted as China delivered just 6% for the year. Concerns around cross-border regulations, and a crackdown on Chinese tech giants, dented investor confidence in the world’s second-largest economy.

However, South Africa bucked the emerging-market trend. Domestic equities posted returns of over 30%, despite a poor performance by index-heavyweights Naspers and Prosus. Richemont was a standout performer as luxury goods sales remained buoyant.

Covid-19 case numbers in South Africa tripled to around 3 million by the end of the year. The rand weakened by 8% though 2021, in line with most of the currency’s emerging market peers.