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2022: outlook for the local investment market

Published Jan 18, 2022


Investors in local shares have had their best year in almost a decade. The FTSE/JSE All-Share Index (Alsi) rose 24% in 2021, it’s best performance since 2012. The total-return index (the Alsi with distributions reinvested) rewarded investors with a stunning 29.2% return on their money. On the other hand, investors in cash saw their returns shrink as inflation reared its head. Can equity investors expect another bumper year in 2022? And what about the other asset classes?

Delving into what financial experts are thinking, first a broader view of prospects for emerging markets.

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David Rees, senior emerging markets economist at London-based global investment house Schroders, says the threat of new Coronavirus variants presents an ongoing risk, as the uncertainty around Omicron illustrates, and this could change the outlook quite dramatically. He says that while improved Covid outcomes should benefit services-based economies, especially those that rely heavily on tourism, there is no getting away from the fact that emerging-market economic growth will be slower in 2022.

“Many of the economies have already recovered to pre-pandemic levels, and this naturally makes it harder to sustain above-trend rates of growth,” Rees says. But he also cites some fundamental reasons for expected slower growth. These include a slowdown in global trade; a weaker outlook for China, which could lead to softer demand for commodities supplied by emerging-market economies such as ours; tighter monetary and fiscal policies by governments intent to repair the damage done to their budgets by the pandemic, and higher inflation.

Recently, Business Report reported that the International Monetary Fund (IMF) warned emerging economies to prepare for US interest rate hikes, as the Omicron variant had raised additional concerns about inflation.

The US inflation rate is expected to come in at 7% for December, a four-decade high, and the markets are already betting on the US Federal Reserve raising rates earlier rather than later.

IMF senior economists said the impact of the US tightening its monetary policy could be more severe for vulnerable countries. “Faster rate increases in response could rattle financial markets and tighten financial conditions globally,” said the IMF. “These developments could come with a slowing of US demand and trade and might lead to capital outflows and currency depreciation in emerging markets.”


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Analysts generally believe that, bar unforeseen catastrophes, the Alsi should continue to perform well in 2022, although not at the levels of 2021. Bloomberg reports that the JSE is set for more gains “on the back of a weakening rand, attractive valuations and supportive monetary policy”.

“We have a positive outlook for South African equities in 2022, expecting double-digit returns,” Jonathan Kennedy-Good, a Johannesburg-based analyst at JPMorgan Chase, told Bloomberg recently. “Above-trend GDP growth and still low rates in South Africa should help equity returns. A weaker rand should boost offshore earnings over domestics.”

Even after last year’s gains, JSE share valuations remain well below those of emerging-market peers, making them very attractive for investors. Tim Acker, a portfolio manager at Allan Gray told Bloomberg: “We are actually finding quite a lot of attractive opportunities, which makes us optimistic about future returns.”

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Hannes van den Berg, co-head of South African equity and multi-asset investments at Ninety One, told Bloomberg that he sees the resources sector as a big beneficiary of global economic growth, while domestic industrials and retailers may get a boost from South Africa’s recovery. Continued gains, however, could come with more volatility, he warned.

“Expect more volatility because of the interest rate hiking cycle globally,” Van den Berg said. “Don’t expect the same kind of records and returns as we’ve seen over the last 18 months.”


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Sanisha Packirisamy, economist at Momentum, and Herman van Papendorp, head of investment research and asset allocation at Momentum Investments, say that while inflation has eroded the yields of bonds in developed countries, the high real (after-inflation) yields of South African bonds “are in stark contrast to those in the developed world and even among emerging-market peers”. For example, local 10-year government bonds are yielding 4.9% after inflation, as against -3.5% in the UK, 1.2% in Mexico and 0.4% in Brazil.

“It stands to reason that these high real bond yields already discount a high fiscal and country risk premium. Not only are South African real bond yields currently attractive versus developed and emerging-market yields, but they are also high against historical averages,” Packirisamy and Van Papendorp say.


With inflation at 5.5% in November and the repo rate at a low 3.5% for most of 2021, cash investments provided meagre, below-inflation returns for investors (money-market fund yields hovered around 4% at the end of the 3rd quarter). After the November rate hike to 3.75% by the South Africa Reserve Bank, forward-looking cash yields rose to above zero (in other words, returns are expected to rise slightly above the inflation rate). However, the aggressive rate cuts early in the pandemic “have made cash the most expensive asset class since 2020,” Packirisamy and Van Papendorp say.

In its statement accompanying the repo rate hike in November, the SARB projected a full 100-basis-point (one percentage point) rise in the rate by the end of 2022 – 25 basis points each quarter. However, inflation is also likely to be up by then, though many analysts still expect it to level out by the middle of the year.


Listed property performed exceptionally well in 2021 (the SA Listed Property Index was up 36.9%), but that was largely a bounce-back from a long period of severe under-performance. Packirisamy and Van Papendorp say fundamentals remain negative, with “rising vacancies, falling escalations, negative rental reversions with a focus on tenant retention and sharp rises in operating costs the order of the day. The negative structural factors of work-from-home and desk sharing also impact the office sub-sector. In the retail sector, too-high rental costs to sales and e-commerce are additional threats, while the industrial sector faces weak capacity utilisation rates and electricity supply issues.

“Our expectation is that listed property values will have to decline by 10% to 15% to account for these negative fundamentals. However, we think a large part of the negative fundamental backdrop has already been discounted,” Packirisamy and Van Papendorp say.

On the residential property front, regional director and chief executive of Re/Max of Southern Africa, Adrian Goslett, says it is difficult to predict with any kind of certainty what lies ahead.

“When we first entered a hard lockdown back in March 2020, we predicted that the property market, along with everything else, was likely to crash. But, counter to what everyone in the industry predicted, the real estate market bounced back and performed better than pre-pandemic years,” he says. The biggest threat posed to the housing market next year, he says, is the very real possibility of an ongoing interest rate hiking cycle.

However, Carl Coetzee, chief executive of BetterBond, says that with the Reserve Bank forecasting only marginal rate increases each quarter for the next three years, “there is still time to make the most of the favourable lending environment that helped keep the property market buoyant during the pandemic.”

This article appears in the January 2022 edition of IOL MONEY digital magazine. The free monthly magazine can be accessed here.