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June local market commentary: JSE soars as gold miners rally

02 July 2020

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by Peter Little, Fund Management

South Africa (SA) was one of the best-performing major stock markets in June, with the FTSE/JSE All Share Index up 7.7% MoM, making 2Q20 (+23.2%) its best quarter since 1Q98. Miners were a key contributor to June’s stock market performance, particularly gold miners, which rallied c. 20% for the month as gold approached $1,800/oz – a level not breached since 2011, when the US credit rating got downgraded amidst haggling over its debt ceiling.

Sasol (+46% MoM) also rallied strongly along with oil (Brent crude +16.5% MoM) and the prospect that it may avoid a capital raise. In June, several SA companies either raised capital or announced their intention to do so. After Mr Price got the ball rolling in May, Curro, The Foschini Group, Harmony, Transaction Capital and Pepkor were among those companies announcing plans to shore-up their balance sheets in June. Amongst the shares with foreign earnings there were mixed trading updates – British American Tobacco revised its revenue guidance lower, expecting a 3% impact from COVID-19 for the year, with duty-free purchases of tobacco hit particularly hard as international travel ground to a halt. Bidcorp surprised the market with its trading update, particularly its ability to control costs as revenue plummeted and it was upbeat about the prospects of a recovery in its core markets. Index heavyweight, Naspers had another strong month, ending June 13% higher with its earnings announcement into month-end doing nothing to dim the prospects for the share.

Economic releases in June included 1Q20 economic growth, which was negative for the third-consecutive quarter, though at -2% QoQ it was better than the expected 4% decline. Most economic data releases related to the pre-lockdown economy, although April inflation came in as expected at 3%. The much-anticipated adjustment budget speech by Finance Minister Tito Mboweni during the month was well received, with a plan to get government borrowing under control once the necessary COVID-19 borrowing spike is behind us. However, as always, the execution of fiscal austerity will be key to the eventual outcome. Benchmark R186 government bond yields ended the month roughly where they started (7.6%).

The rand was one of the leading EM currencies in June, up 1.1% vs the US dollar, with most other EM currencies weaker for the month. YTD, however, the rand remains the worst-performing EM currency behind the Brazilian real.

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