The South African (SA) rand was the worst-performing major currency in January, down 7% as emerging markets (EMs) bore the brunt of the fallout from fears about the economic impact of China’s coronavirus (2019-nCoV or Wuhan Flu) outbreak, with commodities producers like Brazil and SA amongst the worst affected (the Brazilian real was down 6% for January).
The JSE’s mining shares were unable to bail the local bourse out this time and even the seemingly unstoppable platinum shares took a breather during January. Iron ore miners were hardest hit given the metal’s sensitivity to Chinese economic activity, with Kumba down 16% MoM. Gold miners were a rare bright spot as the precious metal’s price rallied 5%, boosted by lower rates and general risk aversion. Sasol’s woes continued with the share down 21% MoM, hampered by a plunging oil price (-12% MoM) and a profit warning that included news of further delays in the ramp up of earnings from the Lake Charles project.
Shares sensitive to the domestic economy, including banks, insurers and retailers were down between 5% and 7% MoM and it was left to those shares with non-rand earnings to limit the damage for the FTSE/JSE Capped SWIX Index which ended the month down 2.6%. Amongst the shares with foreign earnings, British American Tobacco was one of the leaders (+10% in January) as the currency tailwind combined with increased demand for shares with seemingly defensive earnings and high dividend yields at a time when it seems to be catching a breather from health regulators. Naspers was another share that benefited from the currency tailwind as the index heavyweight ended the month 7% higher, while its largest single holding, Chinese internet company Tencent, managed to close the month roughly flat in Hong Kong dollar terms despite the tough month for most Chinese stocks.
The South African Reserve Bank (SARB) surprised the market, voting unanimously for a 0.25% rate cut in mid-January with most analysts having expected the cut to come much later in 2020. The SARB also lowered its forecasts for GDP growth and inflation (which it now doesn’t expect to breach 5% for at least 3 years and probably beyond), suggesting that the risks to growth are to the downside and the risks to inflation are balanced. The cut in rates and the global drop in yields combined to more than offset higher credit spreads, allowing SA’s benchmark R186 government bond yield to drop by 0.2% to 8%.