Standard Bank Swaziland Managed Fund Quarterly update at 30 June 2021 Who are the investment managers? STANLIB eSwatini (Pty) Ltd, an authorised financial services provider, registration number R7/16110, under the Securities Act of 2010 and the Financial Services Regulatory Authority Act of 2010, manage the investments of the fund. Herman van Velze Henk Viljoen BEng (Mining), MBL MCom (Economics)(Cum laude) Head of Equities Senior Portfolio Manager Herman joined STANLIB in 1995 as a research analyst and a After gaining early experience in the treasury environment at Telkom resource portfolio manager. Since then he has held the positions of and at Senbank, Henk joined the then Liberty Asset Management in head of Research, portfolio manager, head of Balanced Fund and he 1990, and was appointed head of Fixed Income. Henk retained this is currently the head of Equities and a member of STANLIB’s role throughout the amalgamation with Standard Corporate and investment executive committee. In 2007 Herman joined a private Merchant Bank that formed STANLIB, and for many years led a multi- equity company as a deal originator to expand his investment skillset. award-winning team which built an undisputed reputation as the most He later in 2009 re-joined STANLIB as the head of Balanced astute and consistently successful Bonds/Fixed Income unit in the funds. He oversees a number of portfolio managers and analysts South African industry. In 2008, Henk handed over responsibility for who provide company research and actively pursue investment the day-to-day management of all third-party, life asset and retail ideas. Under his leadership, the team reviews and refines bond funds. He retained executive responsibility as head of Fixed opportunities which are considered for the portfolio. Herman holds a Income and chairman of the Interest Rate Committee – the key bachelor of engineering from the University of Pretoria and a MBL macro factor forum that determines the duration positioning of from UNISA. STANLIB’s fixed income mandates. In November 2019, he moved to the equity team as a senior portfolio manager. Fund review The Standard Bank Swaziland Managed Fund advanced 1.9% (gross of fees) for the period. Our portfolios benefited from our substantial allocation to fixed income and exposure to listed property. Our relatively high allocation to offshore equity, rather than domestic equity, assisted performance in the period. We increased our exposure to local equity in the quarter, largely on our view that SA’s valuation differential was lagging that of other regions. This move was funded from SA property, an asset class that has re-rated substantially since our entry in 2020 and is expected to deliver lower yields than domestic fixed income. We continued to upweight European and Emerging Market equity exposure, reflecting our view that the cyclical rotation can best be accessed by increasing exposure to economies that are net exporters and that the recent sell-off in EMs was largely overdone. This move was funded from sales of our US-biased global equity portfolio. Market overview In the second quarter of 2021, the South African equity market retreated, after its strong performance in the first quarter. The JSE SWIX Index declined 1.8% in rands, lagging most other international markets. Globally, the technology-heavy S&P500 (+8.6%) outperformed the MSCI All Country World Index (+7.4%) and MSCI EM (+5.1%) in dollars, with tech back in favour. The rand staged a strong recovery, gaining around 10% intra-quarter but settling around 3% stronger against the dollar. South African bonds performed strongly. The ALBI gained 6.9% in rands, outperforming the WGBI, which declined 2.1% on a comparable currency basis. The SA Property Index (SAPY) advanced strongly (+12.1%). From a South African equity subsector perspective, consumer-facing sectors like Luxury (+22%) and General Retail (+14%) performed strongly, while lockdown-reopening segments like Travel and Leisure (+16%), Beverages (+12%) and Diversified Industrials (+11%) also gained traction. The Technology sector (-15%) remained under pressure, which contrasted with the strong performance of big tech in the US. The miners, and in particular the precious metals miners, struggled during the period, with PGMs (-15%), Gold (-12%), Paper and Pulp (-10%) and Diversified Miners (-1%). In the US, both the S&P 500 and Nasdaq indices traded at record highs in the quarter. Cyclical and technology sectors performed particularly well, with the growth style outperforming value. From an economic perspective, the International Monetary Fund (IMF) revised up its 2021 and 2022 world growth estimates. Growth forecasts for the US, UK and SA were upgraded for both years. As expected, the US reported a strong recovery in employment figures, while consumption numbers were supported by unprecedented fiscal support. Exceptionally strong earnings reported by Amazon, for example, reflected the benefits of stimulus. Meanwhile, US GDP advanced 6.4% quarter-on-quarter (q/q) which lagged market expectations but was significantly ahead of the euro area’s -0.6% q/q contraction. This was caused by the initially slow roll-out of the vaccine and a third wave of COVID-19 infections, which restricted economic activity across many sectors, especially retail. The differences between US and euro area fiscal and monetary stimulus measures are significant. While the US is still expanding its spending initiatives, Europe is starting to withdraw its measures. Chinese industrial production continues to recover off a low base and household consumption has strengthened. However, tighter credit conditions contributed to the slowdown at the start of the quarter. Separately, the broadening ecommerce crackdown in China became more apparent, as regulators focused on forced exclusivity arrangements and high commissions. Results from banks and retailers highlighted that the South African consumer is faring much better than initially feared. Google mobility data reveals that actual activity levels in SA were far stronger than in many other markets. Meanwhile, South African manufacturing is showing signs of a broad recovery. Food production is doing very well, reaching an all-time high. South African mining production continues to improve, benefiting from This is a Quarterly Report (QR). Please refer to the Monthly Fact Sheet (MFS) for additional information relating Issue Date: 25 July 2021 to this portfolio and to Disclosures for information relating to the content of this document. Page 1 of 3 Standard Bank Swaziland Managed Fund Quarterly update at 30 June 2021 exceptionally high metal prices. Other positive news included a lower fiscal deficit than a year ago and a meaningful reduction in Eskom debt. Investor confidence was buoyed by the announcement that private investors could self-generate up to 100MW of electricity without requiring approval from the national regulator, a significantly positive move for the economy. Meanwhile, progress on government’s sale of a majority (51%) stake in SAA to equity partners has provided a further tailwind to sentiment. The 4.6% quarter-on-quarter growth in SA’s GDP during Q1 2021 was supported by business services and mining, underscored by the sharp recent improvement in business confidence to 50 index points. South African Producer Price Inflation did kick higher (>6%) but it does not have a clear historical relationship with Consumer Price Inflation. Upward pressure in producer food prices was a key driver. Looking ahead Global economic recovery has persisted since April last year. Political support for economies and the financial system through the pandemic remains in place, with ever-increasing debt levels. The emergence of various new variants of the virus has complicated the expected re-opening of economies post-vaccination and is an important factor in assessing future government policy. The combination of a strong global growth outlook with abundant liquidity is pushing equity investors towards value- and cyclical-style shares, although we believe this may have largely played out. Yields are expected to be anchored at lower levels, to the benefit of a weak dollar and very strong commodity markets. This is expected to be a tailwind for emerging markets, with SA well-positioned to benefit. The outlook for US inflation remains centre stage of global financial markets. We will also be closely watching US employment trends, particularly in job openings and labour force participation, for indications of the potential direction of future interest rates. SA’s outlook has materially improved, especially in relation to many other emerging markets. The cyclical upturn, accompanied by underlying structural earnings growth, makes our forward earnings outlook for our domestic market more resilient. However, the earnings base remains highly concentrated, with about 40% coming from the materials sector. The price outlook for the commodity complex therefore is very important for the SA equity market and the country’s broader finances. Meanwhile, there has been real, although slow, progress on some legacy structural growth issues and an improvement in state finances is expected. This should make the region more attractive to investors. Renewed loadshedding and the third wave of COVID-19 infections remain key risks to the recovery momentum that has been building for South African GDP. Domestic inflation is expected to remain well contained within the band and settle closer to 4.5% next year, after an interim increase. SA’s consumer-facing companies have enjoyed strong gains over the last couple of months. Resilient consumption patterns have supported the early stages of the economy’s re-opening after the stringent lockdown restrictions. Sustainability will depend on the recovery of employment numbers. Stronger GDP growth will help SA’s longer-term fiscal recovery, as well as that of consumer companies, after their immediate valuation rebound. The discount between SA’s domestic equity market fair value and other global proxies remains stark, but because the earnings base is concentrated largely on materials, it can be highly cyclical.