The South African stock market was up over the quarter led predominantly by resource stocks. The JSE All Share Total Return Index gained 13.14% over the quarter.

Chart: Performance of the FTSE/JSE All Share Index over the past ten years (2010/01/01 – 2021/03/31)Source: Trading economics

The first quarter saw continued momentum throughout the major equity sectors. Resources continues to be the strongest performing sector led by the platinum sector.

The South African Reserve Bank has upgraded its 2021/22 growth projections from 3.6% to 3.8% whilst real GDP forecasts for 2022 and 2023 have remained unchanged.

The Rand started the quarter at around R14.70 to the dollar whilst closing out the quarter at around R14.91. This equates to a 1.4% weakening of the local currency against the dollar.

Source: Profile Data 01/04/2021
* Annualised Performance


According to the March factsheets of the various local balanced funds run by Allan Gray, Coronation, Foord, Prudential and PSG, their exposure to growth assets including commodities were at relatively high levels compared to their historical averages. As of the end of March 2021 the various asset managers held around 70% of their local balanced funds in growth assets and commodities. The PSG Balanced Fund held an exposure of 74% in both local and foreign equities excluding property.

This relatively high exposure to commodities and growth assets shows the conviction of the various asset managers regarding their views around the attractiveness of growth assets at this point in the market cycle.

The chart below shows the equity exposure of the Coronation Balanced Plus Fund since its inception in 1996. The blue bars show the fund’s exposure to growth assets over the period. The last time the fund held such a high exposure to growth assets was before the market crash of the Global Financial Crisis.

The table below shows Coronation’s latest asset class return expectations over the next 10 years compared to historical returns. We can see that the return expectation from local equities is more than double that which we have experienced over the past 5 years with the possibility to outperform this by 2% – 3% per annum through exposure to highly rated asset managers.

The return expectation for global equities is considerably lower that what we have experienced over the past 5 and 10 years, however, there is again ample opportunity to outperform this through exposure to highly rated asset managers.

Coronation have summarised their views in the snapshot below.

We can see that the manager is cognisant of the risks to the current environment, not least of which include the numerous South African centric risk factors which have many South African’s opting to rather invest offshore.

Despite the clear risks to the current environment, Coronation also sees “lots of opportunity” for an asset manager to deliver attractive returns through selective stock picking.


The outlook for local equities remains positive. South Africa started their phased approach to distributing the vaccines with the hope of being able to successfully vaccinate at least 30% of the population by the end of the year.

Local equities have been outperforming global equities since the pandemic bottom, however, the local stock market remains very depressed compared to the emerging market and world indices.

Resources are expected to continue their rally into the remainder of the year with the exception of a negative outlook on iron ore prices.

Asset managers continue to endorse the attractiveness of local government bonds despite the South African centric concerns which are well known and acknowledged by asset managers. The rand has also strengthened against the US dollar whilst most asset mangers carry a high degree of both direct offshore exposure and exposure to locally listed companies which derive their earnings from offshore operations.

Various well respected fund managers such as Allan Gray, Coronation, Foord, Prudential and PSG and are holding relatively high weightings to growth assets, higher than their historical averages. This speaks to the fact that they believe that current asset prices offer significant upside going forward.


Global equity markets posted solid gains, returning 4.6% for the quarter. Markets were driven by developed markets (up nearly 5%), with the US even better (up nearly 5.5%). Emerging markets lagged, returning just over 2%. – Coronation Fund Managers

Global bonds sold off during the quarter particularly US government bonds.

The graph below represents the World Equity Index over 5 years in dollar terms.

*Performance as of 31/03/2021

The factor tug of war continues, between “growth” and “value” and between “Covid winners” and “opening up” beneficiaries. Strong performance from the US megacaps, most notably Alphabet and Facebook, will perhaps confound some sceptics. As will the underperformance of “quality”.  – Coronation Fund Managers


Global inflation has been relatively benign over the past several years. Annualised US inflation over the last 10 years ending 2020, averaged 1.73% whilst annualised inflation in the Eurozone over the last 10 years ending 2019 averaged 1.38%.

The US Federal Reserve has signalled that they are willing to let inflation run above their target of 2% as we see a sustained recovery in consumer demand. The fear is that inflation runs higher than expected which could be negative for equity prices. Evan Walker, portfolio manager at 36ONE Asset Management alluded to the fact that if inflation runs hotter than expected, it could spook the market, leading to a selloff in asset prices.

The chart below shows PIMCO’s headline inflation expectation over the near term. We can see a potential spike in headline inflation of over 3.5% which is arguably higher than what the market may have already priced in.

Source: PIMCO

The relevance of this chart and the general theme of potential high short-term inflation in the US is to signal the possibility for higher volatility in the second quarter of 2021. Asset managers are cognisant of the inflation risks over the short-term and many of them have positioned themselves accordingly.

Asset managers continue to see ample opportunities in global markets despite the relatively high valuations in particular sectors and select markets. Although the second quarter of 2021 may turn out to be a highly volatile period, the fundamentals for a recovery in earnings is ever-present.


The outlook for global markets remains positive. Global vaccinations are well under way particularly in developed economies. Further stimulus packages are expected alongside continued favourable policies from central banks across the world.

The second quarter is, however, likely to come with increased volatility due to several factors such as concerns around US inflation and the narrative of a possible bubble forming in US technology companies.

US president Biden has proposed an increase in US corporate tax from 21% to 28%. This forms part of his strategy to fund the $2.3tn infrastructure plan. When implemented, corporate earnings may be reverted downwards leading to a temporary fall in asset prices.

A continued rotation out of quality stocks into cheaper value stocks may lead to a wide disparity in the returns over the second quarter.