April local commentary: The JSE follows global markets lower

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The South African (SA) stock market fell for only the third time in the past 18 months (FTSE/JSE Capped SWIX -4% MoM) in April, as risk appetite soured globally. Despite the April drop, the domestic equity market remains one of only two major stocks markets still in positive territory YTD when measured in US dollar terms (+3.6% YTD), with the other being Brazil’s Bovespa (+15.8% YTD in US dollar terms). There were few places to hide on the local bourse, though coal exporter, Thungela, continued to benefit from surging global energy prices, with the stock up 48% MoM and 222% higher YTD, having risen elevenfold since listing less than a year ago. Sasol, the other local beneficiary of higher energy prices, was up 11% MoM.

Miners have been a key driver of the strong local market performance but were generally weaker in April as production reports disappointed, hampered by unusually high rainfall, COVID-related labour problems, and equipment issues. Weak iron ore prices (-8.5% MoM) also provided a headwind. Weaker gold and platinum group metal (PGM) prices also dragged the miners of those resources lower for the month. Banks and insurers (both -7% MoM) were amongst the weakest performers, while JSE-listed companies with foreign earnings benefitted from a weaker currency (AB Inbev +4% MoM, British American Tobacco +7.6% MoM). Domestically listed investment companies, Naspers and Prosus (+3% MoM) also benefitted from a weaker currency and an 11% rally on the last day of the month from their largest underlying investment, Chinese tech conglomerate, Tencent, that somewhat salvaged April for them. The late-month rally was driven by reports that the Chinese government would support the healthy growth of platform companies, an apparent U-turn from the past couple of years of increasing regulatory headwinds.

The rand, which has held up remarkably well YTD in the face of souring risk appetite, could not hold up against a surging US dollar in April and was the worst-performing major currency for the month (-7.6% MoM vs the US dollar). While most currencies fared poorly against the US dollar in April, the rand’s woes were exacerbated by domestic issues, with Eskom implementing rolling blackouts during the month and warning that the country could experience more than 100 days of loadshedding during the year.

The country was also forced to declare a state of disaster as a result of one of its worst natural disasters, with floods in KwaZulu-Natal causing c. 500 deaths, destroying more than 5,000 homes, and causing extensive damage to infrastructure. The latest data for local inflation showed prices still rising within the SA Reserve Bank’s (SARB’s) target range (3%-6% YoY), with core inflation (+3.8% YoY) remaining muted, but headline inflation, which includes the volatile food and energy categories, more elevated (+5.9% YoY). SA government bonds also had a poor month, selling off alongside global bonds as SA 10-year government bond yields jumped 0.4% to end the month at 10.4%.

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