Cumberland Advisors Market Commentary – South Africa Facing a Resurgence of the Virus

Author: William Witherell, Ph.D., Post Date: January 14, 2021

In recent weeks, a new and more contagious variant of COVID-19 has been surging in South Africa, with per capita new infections and deaths approaching the globally leading rates being experienced in the UK and the USA. While on December 26 the seven-day rolling average of new South African cases per 100,000 people was 19.86, by January 9 the rate was 30.18. This second wave has yet to reach its peak. So far, South Africa accounts for 30% of the more than 3 million cases in Africa.

Cumberland Advisors Market Commentary by William "Bill" Witherell, Ph.D.

When the country was hit with the first wave last March, the government reacted quickly, with a strict nationwide lockdown beginning on March 29, which caused a sharp slowdown in economic activity. On June 1, the restrictions began to be eased in order to permit economic activity and travel to start to recover. The spread of the virus continued, with rapid increases in infections until mid-September, when the spread began to recede and the economy began to recover.

Now, confronted with a second surge of the virus that has many hospitals at capacity, the government has announced only relatively limited restrictions, indicating its intention to balance new restrictions to slow the spread of the disease with the need to encourage economic growth. The hard and lengthy shutdown last year caused a recession with severe economic and social costs for the country.

The first delivery of a vaccine will not arrive until later in January. The objective is to have 67% of the population vaccinated by the end of 2021. This target looks difficult to reach; and even if it is attained, it will mean that, for some months to come, the effect of vaccinations on the spread of the virus will be limited. It is evident that the South African economy and the nation’s people face a very difficult time in the first half of this year, with further restrictions to combat the disease probably being unavoidable. Other countries, particularly those in Africa, face the serious risk of the highly contagious South African variant of COVID-19 spreading to their populations.

Following a 51% quarter-to-quarter slump in South Africa’s GDP in the second quarter, a 66.1% bounceback occurred in the third. Nevertheless, total production during the first three quarters of the year was 7.9% less than in the corresponding period of 2019. Signs of weakness reappeared in the fourth quarter. The December Purchasing Managers Index (PMI) for South Africa, a composite single-figure indicator of private business performance, continued to register the decline in activity seen in November.

For the year 2020 as a whole, South African GDP is estimated to have declined over 8%. The economic growth outlook for this year is highly uncertain because of the pandemic. We expect that the second wave of the virus and the restrictions needed to contain it will limit 2021 annual growth to no more than 3.5%, a pace that implies continued high unemployment. The OECD reports that structural reforms are needed in order for the South African economy to recover its growth momentum. Also, deteriorating race relations need to be addressed, as does the continued corruption that has weakened efforts to fight the pandemic.

The Johannesburg Stock Exchange is the largest stock exchange in Africa, and its equity capitalization is the seventh largest among emerging markets, just short of that of Brazil. Despite the problems cited above, South African shares have risen some 67% from their steep sell-off last March. The most recent gains appear to be driven by hopes for more stimulus in the US and by advances in global commodity prices.

The main South Africa ETF listed in the United States is the iShares MSCI South Africa ETF, EZA. It tracks the performance of the market-cap-weighted index of publicly available stocks, excluding all small caps. EZA is up some 21.31% on a total-return basis over the past three months through January 7, but its one-year return is still down 5.24%. The market does not appear to be pricing in the risks to the economy that we see from the now-uncontrolled surge in virus infections. Cumberland Advisors does not currently hold EZA in our International or Global ETF portfolios. South Africa equities are included in the aggregate iShares MSCI Emerging Market ETF, EEM, with a weight of 3.46%. We do hold EEM in the above portfolios.

The author does not hold in his investments either of the ETFs mentioned in this note.

Bill Witherell, Ph.D.
Chief Global Economist & Portfolio Manager
Email | Bio


Sources: Oxford Economics,, HIS Markit,,,, Goldman Sachs Research

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