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November local market commentary: SA equities soar in first MoM gain since July

03 December 2020

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by Peter Little, Fund Management

After three consecutive negative months, South African (SA) equities bounced strongly in November (FTSE/JSE Capped SWIX +10.4% MoM), driven by a return of global risk appetite for previously out-of-favour cyclical stocks. This as the prospect of an earlier-than-expected COVID-19 vaccine rollout drove hope for economic normalisation in the foreseeable future. Local banks and insurers were up 19.3% MoM and 16.5% MoM, respectively, along with a 15% rally in small-cap stocks. Miners were also a beneficiary of the economic-normalisation rally, up 9% in aggregate, with the only laggards being gold shares, which were down 17% MoM as demand for the haven-metal faded, leaving it 14% off its recent highs at month-end ($1,777/oz).

The SA rand rallied against the US dollar (+5% MoM ) along with its EM peers, though this was not enough of a headwind for SA-listed shares with foreign earnings, which were up 16% MoM in aggregate including stellar performances from Richemont (+28% MoM), Bidcorp (+25% MoM) and Anheuser-Busch InBev (+22% MoM). Naspers and Prosus were also able to overcome the rand headwind and a 5% MoM drop in their largest investment, Tencent, to end the month marginally positive in aggregate. This, as management reiterated a determination to reduce the holding company discounts including the announcement by Prosus of an R80bn share buyback programme (the largest in JSE history). Local property stocks also participated in the cyclical bounce (FTSE/JSE listed property index +17.5% MoM), with Vukile, Hyprop, and Nepi Rockcastle up 45%, 40%, and 37% MoM, respectively.

SA inflation hit a YTD high (+3.3% YoY) largely as a result of stronger food price inflation (+5.4% YoY). Rating agencies Fitch and Moody’s surprised during the month, cutting SA’s credit rating further into sub-investment grade territory to reflect the COVID-19 hit to the economy. However, the market took the rating cuts and slightly higher inflation in its stride and local government bonds rallied with the SA 10-year government bond yield ending the month 0.3% lower at 8.97%).

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