South Africans will probably remember March mostly for the 10 consecutive days of power cuts implemented by Eskom, pessimism peaked halfway through that period when Public Enterprises Minister Pravin Gordhan, suggested that staff were still getting to the bottom of the issues Eskom was facing and how long it would take to resolve them. Stocks most exposed to South African consumers bore the brunt of this pessimism. Banks were among the worst performers, (ABSA and Nedbank were down 16% and 12%, respectively), while retailer Mr Price declined by 12%.
Despite the local power challenges, the rand took most of its direction from global events and ended the month down 2.9% – better off than the currencies of Argentina (-9.8%), Brazil (-4.2%), Turkey (-4.1%) and Chile (-4.1%). The weaker rand was one of the factors that prevented the FTSE/JSE Capped SWIX Index from having a worse month, it ended March down only 0.2% as stocks with offshore earnings, partially offset the dismal performance of locally exposed corporates. The biggest positive contributors for the month though, were Naspers, where Tencent was up again in March (7.5%) and the mining companies, where earnings estimates continued to be upgraded to increasingly factor in the commodity prices sticking around these levels.
As domestic companies continued to release earnings, the worst performer amongst the 40 largest South African shares was Aspen, which plunged 30% the day after it announced results which showed mounting debt growing faster than operational cash flows.
The South African Reserve Bank meeting towards the end of March delivered no rate cuts, in-line with expectations and on the stroke of month-end Moody’s, which was expected to opine on the stability of South Africa’s debt rating, chose not to issue a statement. While economists were split on whether SA would have its ratings outlook downgraded to negative, the lack of a statement effectively kept the outlook at stable. South African bond yields strengthened by about 0.1% during the month, although they essentially lost ground to their developed market peers as US 10-year bond yields strengthened by 0.3%.