South African (SA) Finance Minister Tito Mboweni, tabled the 2021/2022 National Budget in late-February, delivering a positive tone as a strong mining industry and a faster-than-expected recovery in spending resulted in corporate tax and VAT collections exceeding expectations by c. R 100bn. The higher revenue and progress on cost control allowed Mboweni to avoid raising taxes to pay for COVID-19 vaccines and forecasts for government’s peak indebtedness (projected for 2025-2026) were revised slightly lower (from 95.3% of GDP to 88.9% of GDP).
Having traded below 9% since the news of effective COVID-19 vaccinations broke in November, SA 10-year bond yields ended the month at 9.05%, climbing 0.3% in February as domestic bonds yields tracked US 10-year bond yields higher, with foreigners selling c. US$2.2bn of domestic bonds in the latter half of February. The local currency clawed its way back from a January sell-off against the US dollar (-3.1% MoM in January) and was marginally stronger for the year going into month-end, before the global spike in yields caused it to fall by 4.1% during the last few days of February, leaving the rand only marginally stronger for the month (+0.3% MoM).
Local stocks produced a fourth consecutive positive monthly return (FTSE/JSE Capped SWIX +5.3% MoM) having rallied 26% since the start of November 2020. There were decent contributions across the board, with gold miners being the only major segment that was down for the month (-16% MoM), with the gold price falling as rates climbed. Naspers and Prosus had a quiet month eking out small gains (1.1% and 0.6% MoM, respectively), despite a 3% MoM drop in the rand price of Tencent, their largest underlying investment. Platinum miners had a strong month (+19% MoM) as platinum group metals (PGMs) continued to surge and diversified miners (+14.5% MoM) benefited from a higher iron ore price. Sasol rallied 14.2% MoM (leaving it 40% higher YTD) after announcing it would avoid a dilutive rights issue. Amongst the domestically focussed sectors, banks and insurers were up 4% and 5% MoM, respectively, while the FTSE/JSE Listed Property Index rose by 8.6% MoM, having matched the local equity market’s 40% rally over the past four months.