South Africans endured a full month of level 3 lockdown restrictions to start 2021, leaving them without access to alcohol, beaches, and parks for January and the start of the government school year was pushed out to February, with movement restrictions appearing to have helped the country past the peak of its recent second wave COVID-19 outbreak. As South Africans awaited details on their vaccine rollout programme, local stocks managed to string together a third-consecutive positive month for the first time in 2 years (FTSE/JSE Capped SWIX +3.1% MoM), with the local market rallying by 20% since the end of October 2020, to claw its way back above pre-pandemic highs.
Naspers and Prosus were back to leading from the front, up 15% and 9% MoM, respectively (perhaps slightly disappointing relative to the 25% MoM rand return of their biggest underlying investment, Tencent). Diversified materials also performed strongly in January (+5% MoM) as production updates showed that weak volumes in 2020, as a result of pandemic disruptions, were more than compensated for by higher commodity prices. Amongst those stocks sensitive to domestic economic activity, it was a mixed bag, with banks and insurers having a disappointing month, while retailers delivered decent monthly returns. Most consumer retail companies reported festive season sales updates in January, which generally surprised the market positively, driving a particularly strong rally in some of the more credit-driven retailers such as Lewis and Truworths, which were each up by more than 20% MoM.
The local currency broke an eight-month winning streak against the US dollar, falling by 3.1% MoM as most non-Asian EM currencies lost ground to the greenback at the start of 2021. During the month, the South African Reserve Bank (SARB) agreed to leave interest rates unchanged (as broadly expected), guiding for two 0.25% rate hikes in 2H21 as it revised its growth and inflation forecasts moderately higher. The SARB’s guidance is at odds with forward rate markets, which are not convinced that there will even need to be a single rate hike this year. The most recent core inflation print, for December, still showed the local economy experiencing very little inflationary pressure at 3.3%, in line with expectations and right towards the bottom of the SARB’s target inflation range. Bond yields were fairly stable for the month as SA 10-year government bond yields ended January largely unchanged at 8.7%.