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March local commentary: JSE Capped SWIX delivers second consecutive double-digit quarterly return

07 April 2021

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by Peter Little, Fund Management

South African (SA) stocks ended the quarter strongly (FTSE/JSE Capped SWIX +3.7% MoM), delivering a double-digit 1Q21 return (+12.6%) – its second consecutive double-digit quarterly return (in 4Q20 it recorded an 11.5% gain). A slew of earnings announcements during March delivered generally better-than-expected results and saw gains across the board for JSE-listed companies. Insurers were a rare weak spot for March, as earnings results were accompanied by a cautious tone and news of additional provisions against claims related to new waves of COVID-19 infections. Diversified miners were another weak spot, held back by softening commodity prices (Iron ore -6.2% MoM).

MTN was amongst the best-performing JSE-listed companies (+19.5% MoM) as it discussed plans for a value unlock, including separating its fibre and fintech units. Shoprite was another star performer for March (+18% MoM), as its earnings release showed the company’s African operations turning profitable and impressive cash generation across the Group. Tight supply in palladium saw the metal rally towards the all-time highs achieved pre-pandemic (+13% MoM) and helped drive JSE-listed platinum miners higher (+11% MoM). JSE-listed small- and mid-cap stocks also had a strong month as investors stepped back into smaller companies that have generally been shunned for the last few years.

The South African Reserve Bank (SARB) met during March, leaving rates unchanged (as expected) having seen February inflation data come in below expectations (2.9% YoY) and below the lower band of the SARB’s target range (3% to 6%). The SARB remained cautious on the country’s growth outlook, moderately increasing its 2021 economic growth forecast from 3.6% to 3.8%, with the prospect of a third wave of COVID-19 infections and constrained electricity supply weighing on output potential.

Despite supportive monetary policy and muted inflation expectations, SA government bond yields sold off during the month, tracking global rates higher. SA 10-year government bond yields ended the month 0.5% higher (at 9.5%) causing the JSE All Bond Index to fall by 2.5% MoM. The rand was the best-performing major currency for March, rallying 2.3% MoM against a generally strong US dollar.

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