CAPE TOWN - THE POSITIVE news about Covid-19 vaccines have sent stock markets to new highs in the final months of 2020 from already elevated levels - the pace and efficacy of the global vaccine roll-out will be a major market moving factor next year.
Old Mutual Wealth Investment said the JSE followed suite, recovering strongly with the FTSE/JSE All Share Index returned 10.5 percent from -4.7 percent the previous month.
The surge pushed its 2020 return into positive territory at 2.6 percent.
The JSE Top 40 returned strong returns of 10.4 percent in November, from -4.6 percent in the previous month in rand terms.
However, there were differences between the three main sectors. Industrials returned 8 percent in November, lagging other major sectors, as Naspers/Prosus was flat. Year-to-date industrials were ahead of resources and financials with a 13 percent return.
Resources shares rallied 10.9 percent in November as commodity prices apart from a surge in gold bullion price.
Financial shares were strongly positive in November with a 17 percent return, led by banks. However, the sector was still 25.8 percent in the red year-to-date.
Financial shares tend to be more focused on the domestic economy and sensitive to long rates, and it shows in the relative performance, the strategists said.
Flagship Asset Management fund manager Pieter Hundersmarck said there was reason for caution in the market, in spite of the elevated levels of share prices currently.
Hundersmarck said the most significant risk in the unwinding of the risk-on rally, which had seen equity prices rise to the extent they had, and valuations at historical highs.
He said businesses that contributed most to the stock market rally were those to emerge stronger from the pandemic, namely software, IT and internet-related counters.
Hundersmarck said it would take a while before any vaccine was distributed widely and there was a risk that fiscal stimulus measures were withdrawn in the interim in some countries, weighing on economic growth.
"Other material risks included not meeting an ambitious vaccine timeline, but if it was met, and corporate earnings slightly exceeded expectations, equity could return to bubble territory due to the further rotation of institutional money into equities as investors look for higher returns," he said, adding that if lock-down easing was, however, delayed due to further outbreak waves of Covid-19, and earnings fail to materialise, equity markets could fall 20-30 percent.
Cannon Asset Managers chief executive Dr Adrian Saville said that while 2020 was a disaster with the world hammered by a deadly pandemic, communities ripped by police brutality, plunging global growth, the loss of hundreds of millions of jobs, protests and corporate collapses, the S&P 500 was 5 percent higher in November than it was in January and the gold price is up almost $500/oz, making for a bonanza for gold miners.
“For 2021, investments needed to be built to withstand the harshest and worst circumstances, including through diversification,” Saville said.