Market & Economic Outlook October 2021
21 Jul, 2022

Momentum Investments today released its Market and Economic Outlook for October 2021, prepared by the Momentum Macro Research team.

Please see below for a summary of highlights from the team, as well as a downloadable PDF.


Unless a double-dip recession becomes a reality in the United States (US), a reset in bond yields to higher levels seems likely.
Although further earnings upside should provide some underpin for global equities, the anticipated declining profit momentum and prospective US quantitative easing (QE) tapering could lead to more choppiness in market returns going forward. Historically, larger market corrections ensued at the end of central bank balance sheet expansions (predicted by Bank of America to happen by the second quarter of 2021 for the G4 (the world’s leading four developed countries) aggregate) and once quantitative tightening starts. In relative terms, global equities remain cheaply priced against global bonds.
Strong earnings upgrades for financial years 2021 to 2023 (FY21-23) have been the norm for South African (SA) equities this year. This has forced valuations down into very attractive territory, significantly enhancing the potential return upside for SA equities going forward.
The main drawcard for investment in the SA nominal bond market remains the high level of real yields available. In the inflation-linked bonds (ILB) space, smaller monthly inflation accruals should provide less fundamental support for the asset class until the second quarter of 2022.
Despite weak property sector fundamentals, the expected limited further property value declines from here point to significant return upside for the asset class in coming years, despite the many uncertainties in the sector.
The prospective zero real return available to investors from local cash remains unappealing, in our view.


Regional economic fortunes are likely to remain highly divergent despite a strong rebound pencilled in for the globe as a whole in 2021 from a decimated base in 2020.
Less available fiscal and monetary policy space as well as new and more severe virus strains in lower vaccinated countries will likely keep the relative pace of economic recovery in emerging markets (EMs) on the back foot.
Despite a rapid narrowing of output gaps in many developed markets (DMs), we are not anticipating a persistent inflationary episode to follow given that demand is unlikely to remain above supply, above productivity-related wage increases are unlikely to persist and longer-term inflation expectations remain reasonably well anchored.
Clear communication from key central banks is pivotal in minimising the risk of panic and preventing the extreme reaction in bond markets that occurred during the previous episode of reversing QE in 2013. Nevertheless, EM external positions look far healthier this time around.
While growth in the local economy staged a firmer-than-expected 7.5% rebound in the first half of the year, we expect growth to soften from here given ongoing supply constraints, a lagging vaccination rollout plan, elevated unemployment and an adverse effect of the July riots on business confidence.
Although the commodity price windfall has boosted revenues for this fiscal year, medium term risks remain high in the context of shorter-term wage agreements and a push for pro-poor spending.
We expect inflation to average close to the midpoint of the 3% to 6% inflation target range for the next three years in the absence of any currency, food or oil price shocks.
We view no immediate pressure on the SA Reserve Bank (SARB) to raise interest rates and therefore see the risks to the first interest rate hike as being tilted towards the first quarter of 2022. We expect a gradual normalisation in interest rates to follow.

To download the full report, click below….



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