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Local market commentary – June 2019

01 July 2019

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by Peter Little, Fund Management

Locally, in June President Cyril Ramaphosa’s state of the nation address (SONA) promised strong support for Eskom, reaffirmed the central bank’s mandate, promised infrastructure spending on roads and water and a long-awaited spectrum auction for the telco companies. It went off without a hitch, although it was slightly light on details.

Mining stocks were at the forefront of the domestic equity market rally in June, with the materials sector delivering more than half of the 2.9% the Capped SWIX Index returned for the month. Iron ore prices were up double digits (in US dollar terms) for the second consecutive month – enough to drive YTD gains to almost 60% and providing a strong boost for the diversified miners. Gold miners were also up strongly off the back of an 8% spike in the gold price. Naspers was the other key contributor to monthly performance, up 4.4% for the month as positive trade sentiment helped drive its largest subsidiary, China’s Tencent, up 5.2% in rand terms. Despite the rand oil price being largely flat in June, Sasol continued to drop (down 4.5% in June). Sasol is now down 16.5% YTD, while the rand price of oil is up 21.5% over that period.

The rand rallied (+3.5% in June) alongside most emerging market currencies as the prospect of lower global rates pushed the US dollar down. SA long-term government bonds also benefitted from lower global rates with the yield on the R186 bond (maturing in December 2026) 0.4% lower for the month and 0.8% down for the year. Lower yields have pushed SA’s All Bond Index up 7.7% for the year (ahead of the 6.9% delivered by the Capped SWIX Index). During the month, data on retail sales growth (+2.4% YoY) came in well above expectations, as did manufacturing production (+4.6% YoY), while inflation data came in roughly in-line with expectations (4.5% YoY). Despite inflation hovering around that level for over a year now, interest rate markets are still pricing in only a slim chance of a rate cut this year, notwithstanding the fact that SA is caught in its longest business cycle slump since 1945.

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