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October local market commentary: The JSE weighed down by global risk-off sentiment

04 November 2020

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by Peter Little, Fund Management

The South African (SA) market had a third consecutive negative month in October (FTSE/JSE Capped SWIX -4.2% MoM) as the local bourse was not spared the global risk-off sentiment. However, the rand managed to buck that trend, ending the month 3.1% stronger against the US dollar at R16.24/US$1. The stronger rand was a contributing factor in a poor month for locally listed stocks with foreign earnings (rand hedges), which were down 11% in aggregate, and miners, which were down 10% in aggregate. Those counters combined to detract 4% from the FTSE/JSE Capped SWIX Index’s performance in October.

However, Naspers and Prosus were able to more than outperform the currency headwind and ended the month up 6.5% in aggregate, thanks to a strong month for their largest investment, Tencent, which was up 13% MoM in rand terms, and an announcement that Prosus would be buying more Naspers shares as part of a drive to unlock some of the holding company discount in those listings. Stocks with domestically geared earnings had a mixed month, with decent results driving some of the local retailers (Pick ’n Pay +9.1% MoM, Clicks +6.1% MoM). Capitec (+9.9% MoM) was the only local bank to end the month higher and the Insurance sector was a bit of a bloodbath (Discovery -16.4% MoM, MMI -16.1% and Old Mutual -9.5% MoM).

Finance Minister Tito Mboweni delivered the much-anticipated Medium-Term Budget Policy Statement (MTBPS) towards month-end and laid out a plan to curb spending on the government’s wage bill, avoiding the temptation to embark on a debt-fuelled spending spree. While encouraging, the plan has high execution risk as was very evident in the announcement of a R10.5bn bailout for failing state-owned airline, SAA which, along with other state-owned enterprises, has been a large drag on the fiscus.

SA 10-year government bond yields fell by 0.1% to end the month at 9.3% as the release of local inflation data for September showed core inflation (excluding food, beverages, petrol, and energy) was stable at 3.3%, comfortably towards the lower end of the SA Reserve Bank’s (SARB’s) 3%–6% target range.

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