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July local market commentary: Gold shares lead from the front

05 August 2020

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by Peter Little, Fund Management

The South African (SA) stock market had a solid month in July (the FTSE/JSE All Share Index was up 3% MoM) although we note that, while it led global markets in June, it lagged its emerging market (EM) peers in July (MSCI EM +8.9% MoM). July’s stock market performance was all down to the materials sector, which was up 13% MoM with gold shares leading from the front once again (+24% MoM) off the back of a 9% rally in the rand gold price (which is now up 59% YTD). Gold shares have roughly doubled YTD, with platinum shares not far behind (+18% MoM). Companies with SA-centric earnings were largely flat and Naspers had a negative month (-0.5% MoM).

Those JSE-listed companies with predominantly foreign earnings also had a weak month, down 4% in aggregate as the rand strengthened by 1.5%, ending the month at R17.07/$1 after fading from a mid-month high of R16.40/$1. Anheuser Busch was the biggest exception amongst the foreign earners, up 10% MoM after posting 2Q20 sales of $10.3bn, ahead of expectations of $9.5bn. YTD, gold shares, Naspers and Prosus have contributed 10% to the performance of the FTSE/JSE Capped SWIX Index (which is down 8% YTD), while domestically focussed shares have cost the index 14%. SA-listed real estate’s rally in June did not last, as the sector experienced another negative month (-3.2% MoM), its fifth negative month YTD, leaving the local property index down 37% YTD.

SA core inflation for May and June were released during July, with core inflation hovering around 3% for both months, towards the bottom of the SA Reserve Bank’s (SARB) target range. This allowed the SARB to deliver a much-anticipated 0.25% rate cute at its July meeting. That was the SARB’s fifth interest rate cut for the year, having cut rates 3% to 3.5% YTD. SA’s 10-year government bond yield ended the month roughly where it started (9.7%) recovering from a brief sell-off above 10% during the month.

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