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April local commentary: Diversified miners and property stocks push the JSE higher

05 May 2021

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by Peter Little, Fund Management

South African (SA) stocks recorded a sixth-consecutive monthly gain (FTSE/JSE Capped SWIX +0.8% MoM) – the longest winning streak for local equities since 2014/2015. The April gains added to a local equity market rally, which has pushed the local bourse up over 30% since early November (around the time of the first announcements of effective COVID-19 vaccines). The April gains were largely thanks to the diversified miners, which were up over 4% in aggregate as commodity prices rallied (iron ore +20% MoM), and the property stocks, which had a stellar month (+11.6% MoM). Property stocks have had a torrid past few years but are now up c. 60% since November (although still around 40% below their late-2017 highs).

At an individual stock level, Investec was noteworthy (+29% MoM) as deep value shares caught investors’ attention and its exposure to the UK banking sector helped it participate in a rally in European banking stocks. Sasol (+15% MoM) benefited as Brent crude oil approached US$70/bbl and rand-hedge heavyweights, Richemont (+5.5% MoM) and Anheuser-Busch (+10.5% MoM) overcame a strong rand to contribute meaningfully for the month. Anheuser-Busch rallied as analysts started to become more bullish on the prospects of the brewer with economic activity normalising, while Richemont rose in sympathy with luxury peer LVMH as that company released earnings which shattered expectations. The other major rand-hedge share, British American Tobacco had a poor month (-4% MoM) as regulators announced a plan to relook at a ban on menthol cigarettes in the US, which accounts for more than a quarter of the company’s earnings. Index heavyweights, Naspers and Prosus were also a drag on the month’s performance (-6% MoM in aggregate) as management’s attempts to reduce the discount of their market cap to the value of the underlying investments, by selling US$14.6bn of their largest investment (in Tencent), failed to impress investors.

During April, inflation data again came in towards the bottom end of the SA Reserve Bank’s 3%-6% range (at 3.2% YoY), while retail sales were up 6.9% YoY in March and exports continued to surge, leaving SA with a R52bn March trade surplus. The SA 10-year government bond yield followed global yields lower, ending April at 9.3% and the local currency rallied further (+2% MoM) against a weak US dollar, leaving it 33% stronger than the R19/US$1 level it reached in April 2020.

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