By Peter Little
South African equities continued their strong post-election run, with the FTSE/JSE Capped SWIX Index recording a 1.3% month on month (m/m) increase.
Despite the local bourse being weighed down by miners, down 10% m/m, which were a 2.3% drag on the monthly index performance, stocks geared towards the domestic economy (up 6% m/m) were the best-performing cohort, having rallied 26% over the past three months on improving sentiment towards domestic investments.
Standout performances among the domestically focussed stocks in August came from Mr Price (up 12% m/m) and Absa (up10% m/m), with Absa releasing disappointing results (as expected). Investors were encouraged by Absa’s announcement of upcoming leadership changes.
Cellphone companies Telkom (up 20% m/m) and MTN (up 12% m/m) were also among the best performers on the JSE. Telkom was buoyed by a trading update that showed market share gains in Telkom Mobile, with MTN’s trading statement including positive details about the renegotiation of tower leases.
Precious metal miners were the worst-performing miners in August, with gold miners (up 11% m/m) and platinum miners (down 18% m/m). The performance of the gold miners came despite a stronger gold price (up 2.3% m/m in US dollar terms). The sector was disproportionately impacted by Gold Fields (down 22% m/m), which saw its share price slump as it lowered its production guidance for the second time in three months because of operational challenges at its SA and Chilean mines.
Platinum miners’ share prices tumbled as earning announcements exposed the extent of the earnings declines resulting from lower metal prices. Northam Platinum CEO Paul Dunne said current prices made the industry unsustainable in SA, the world’s largest platinum producer.
The South African government’s 10-year borrowing rate continued to follow global funding rates lower, ending August at 10.6% per annum, well below the 12%-plus per annum level it was trading at pre-elections.
The latest local inflation data also boosted the prospect of the SA Reserve Bank (SARB) after the anticipated rate-cutting cycle of its major global central bank peers. SA core inflation rose 4.3% year on year (y/y) in July, below the midpoint of the SARB’s target range and consensus economist expectations – both at 4.5% y/y.
The local currency had a tough start to the month, falling 1.7% against the US dollar in the first few days of August as an unexpectedly hawkish Japanese central bank catalysed the unravelling of popular carry trades (borrowing at low yen funding rates to lend in high-yielding currencies). However, the rand fought its way back against a generally weaker US dollar to end August 2.2% higher m/m against the greenback.
Peter Little is a fund manager at Anchor Capital.
BUSINESS REPORT