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First quarterly newsletter of 2021

In the 2020 letter to Amazon shareholders, Jeffery Bezos notes the following:

“If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.”

At BACCI this principle resonates with us, from our stock selection process, our client portfolio construction, managing our business and to our personal lives.

This quarter we are thrilled to welcome two new members to the BACCI team.

Vicki Constant and Matthew Scruton. Vicki, a veteran in the financial services sector, joins Wafieka’s operations team and has already made a material impact ensuring all administrative aspects of the advisory team run smoothly. Matthew has relocated from Durban from the wealth management industry to join us as an equity analyst. His articles on Cryptocurrency & Bitcoin ( and Alibaba Group Holding Investment Thesis ( can be found on our website and are well worth a read.

Equity markets continued to steamroll ahead this quarter, specifically in the developed markets such as the USA and Europe. Concerns of rising inflationary conditions, in light of the significant stimulus injected into the global economy, has begun to lead to a rise in bond yields. Consequently, stock rotation away from the previously favoured high growth companies and into the broader market including banks, travel and cyclical companies led this performance. Optimism over the global economic recovery continues to gather momentum. Fiscal stimulatory spending is probably the largest supportive factor, whilst interest rates remain low. For now, the data confirms the optimism, but global indebtedness will weigh on potentially higher risks at these elevated equity market levels.

The South African equity market also pushed higher this quarter, up 13%, making these the best first quarter returns in 15 years, whilst outperforming both developed and emerging markets. The returns were dominated by resources which were up 19%, and to a lesser extent the industrial sector, up 13%. The financial sector lagged but was still up 4% and on the forex side, our currency strengthened just marginally against the US dollar.

Performance summary charts

The charts below highlight the performance of selected markets for the past quarter.

Source: MSCI, Datastream, Morgan Stanley Research, Bloomberg and Visio

To highlight the phenomenal recovery in markets.

we also show the charts for the year ending 31 March 2021.

Source: MSCI, Datastream, Morgan Stanley Research, Bloomberg and Visio

The global recovery has been stronger than previously expected and the latest global figures support a more optimistic outlook. The charts are all reflective of this sentiment. A risk that is worth considering, should market ‘earnings’ expectations be disappointed, short-term volatility may well increase.

Ultimately the underlying fundamentals of your investment will determine the return outcome. A longer-term perspective, highlighting the earnings growth and stock market returns of global regions is shown in the chart below. The dominance of the USA, specifically high growth stocks, including Apple, Microsoft, Amazon, Facebook and Google, when compared to the rest of the S&P 500 index and the rest of the globe. Earnings growth expectations are driving returns. Regions that have consistently disappointed in earnings growth over the period have shown weak equity price returns. Valuation differentials are now more apparent and evident in the recent trend of stock rotation away from these favoured stocks and regions.

The South African economic recovery is lagging that of other comparable countries. Nevertheless, the country will benefit from the combined effect of a faster global recovery, high commodity prices and easy monetary conditions.

Local earnings expectations are mostly positive, again with many of the earnings revisions taking place in the resources sector. This then flows through to the individual market valuations, with many still remaining attractively priced, both on an absolute basis as well as in relative comparisons to their emerging market peers as shown in the charts below.

Source: Thomson Reuters, IBES, RMB Morgan Stanley

In our reading, longer term themes we are monitoring may be of interest. The consequences on the pandemic will be felt for many years. How we live, work and invest has changed and trends accelerated,

  • As noted by UBS, “a green bias as sustainability is both fashionable and economically essential. Current living standards are being financed by current environmental credit, and this cannot continue”. A greener focus in corporate strategies, be it in mining, packaging, and food to mention a few, will change how companies allocate capital and will present attractive investment opportunities.

  • Global inequality deepened as the rich got richer with near zero interest rates fuelling risky assets. Skilled professionals and capitalists have benefitted materially. As noted in the FT, “the pandemic has affected people very differently within each country. The victims of its social and economic costs have mainly been children and young adults, people who cannot easily work from home, generally the less skilled, women (especially mothers of young children) and ethnic minorities. These scars are deep and need healing.” When and how does this start correcting itself?

  • Rising bond yields indicate that financial markets fear that the fiscal stimulus applied globally may lead to unwanted inflation. But will it be material and sustainable? We know that a sizeable portion of the stimulus is earmarked for inoculations and much needed subsidies for households and businesses. Admittedly, as the economy recovers, supply constraints will result in once-off inflation. Spare capacity in economies makes inflation an unlikely threat for now. Ultimately government stimulus should focus on adding productive capacity to generate growth,

We reaffirm that each component in the portfolio construction is working to ensure the risk and return characteristics of your assets are optimal. We are pleased to note that returns in these extremely volatile times have remained robust, with volatility kept to a minimum.

Thank you for your interest. We welcome any feedback or questions.

Kind regards

Oliver, Ulf, Vanessa and Warren


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