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Local Market Commentary – January 2019

05 February 2019

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by Anchor

The local market ended January in the green, with the FTSE JSE All Share Index rising 2.7% MoM, as some high-weighted shares on the JSE recorded impressive gains. After a lacklustre performance towards the end of last year, Anheuser Busch Inbev jumped 5.3% on the back of reports that it is considering an initial public offering (IPO) of its Asian operations to unlock value. Meanwhile, Naspers’ (+5.1% MoM) share price was buoyed by Chinese regulators resuming approvals for new games from Tencent after halting the process months before. Naspers also announced that it had received approval to spin-off and list MultiChoice. Anglo American rose 6.2% MoM, while FirstRand and Standard Bank recorded MoM gains of 5.8% and 9.1%, respectively. Stronger commodity prices saw the Resi-10 end the month 2.7% higher, while Industrials carved out only a 0.8% MoM increase. Financials jumped an impressive 6.8% as the big-four banks posted solid share price gains (ABSA +14.2%; Standard Bank +9.0%; FirstRand +4.8%; Nedbank +4%).

January’s best-performing share was Ascendis Health (+31.3% MoM), which saw a reversal of its fortunes after the firm said it had received an unsolicited offer for its biggest offshore business – Cyprus-based pharmaceutical maker, Remedica. It was followed by Grindrod (+24.2% MoM), which recorded a turnaround from its oversold position and, in third spot, Kumba Iron Ore soared 19.6% higher MoM following a surge in global iron ore prices after a dam burst in Brazil, disrupting production at a mine owned by the world’s largest iron-ore producer, Vale. Vale said it would decommission all of its upstream tailings dams thus reducing supply by 40mn tonnes p.a. January’s worst-performing shares included Blue Label Telecoms (-17.7% MoM), which has been negatively impacted by Cell C’s persistent losses and the cost of providing it with additional cash and loans, Shoprite (-13.9% MoM), which plummeted after the retailer announced that it expected a significant decrease in its 2H18 HEPS, and EOH Holdings coming in third with a 13.4% MoM fall.

A weaker dollar helped the rand rise 5%-plus MoM vs the greenback, with Business Day writing that the gains are on track for the rand’s “best start to a year in at least three decades”. The rand also benefited from a more cautious Fed and optimism that the US and China will strike a trade deal.

In politics, President Cyril Ramaphosa and an SA delegation attended the World Economic Forum in Davos with hopes of strengthening partnerships for economic growth. Addressing business leaders at the conference, Ramaphosa acknowledged that the country “lost its way” during his predecessor’s presidency (without mentioning Zuma by name), and noted that revelations at the Zondo commission will be painful for the ANC, but in the end “will prove to be cathartic for the country and will ensure state capture never happens again.” He also painted a positive picture of SA for investors, noting that a second investment conference may be on the cards towards the end of this year. Times Live writes that he also made assurances the SA Reserve Bank (SARB) will remain independent.

As expected, the SARB’s monetary policy committee left the repo rate unchanged (at 6.75%) at its January meeting. On the macro front, December headline inflation slowed to 4.5% YoY (vs November’s 5.2% YoY print), while MoM inflation was unchanged at 0.2%. Declining fuel prices and modest food price inflation were the main drivers behind the 0.7-ppt drop in December. SA reported a December trade surplus of R17.2bn vs market forecasts of R9.0bn, but data showed declines in imports and exports across all categories. November retail sales activity recorded a 3.1% YoY growth rate (likely thanks to Black Friday sales) – the biggest increase in eight months and above market expectations of a 2.5% YoY rise (it increased 3.1% MoM vs a 0.1% MoM gain in October).

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