August 2019 local market commentary: JSE follows global markets lower

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South African (SA) markets sold off in sympathy with global markets as an escalation in trade wars had investors fretting about the impact on global trade and economic growth. The rand sold off (-5.6% for August) along with emerging market currencies and the FTSE/JSE Capped SWIX Index (Capped SWIX) fell 2.7% for the month. The sharp move in global interest rates was enough to drag the SA benchmark R186 government bond yield 0.13% lower to 8.2%.

Gold rallied (up 7.5% in US dollar terms for August and 14% higher in rand terms) as investors flocked to haven assets and plunging global yields improved the appeal of owning gold. The spike in gold prices boosted gold mining shares, with that sector of the Capped SWIX Index up 28% for the month. Platinum shares also benefitted from a rally in precious metals and, were it not for the strong performance of those shares, the Capped SWIX would’ve ended August down 4%. Diversified miners fared poorly as industrial metals sold off (benchmark iron ore prices dropped 27% for the month). Sasol’s woes continued as it was forced to delay its results over concerns around controls at its Lake Charles project, where delays and cost overruns have contributed to a 46% drop in Sasol’s share price since mid-April.

Discovery (-13% in August) was impacted by the publication of SA’s new National Health Insurance bill which created some uncertainty around the future of private healthcare in SA. Local retailers continued to disappoint with Shoprite (-27% in August) the latest casualty as it released disappointing results, weighed down by losses in its rest of Africa operations and guided for low single-digit price inflation going forward.

Statistics SA reported July inflation of 4.0% during the month, well below economists’ expectations of around 4.3% and even core inflation (which excludes the volatile food and energy categories) came in at 4.2% – below the mid-point of the SA Reserve Bank’s 3%-6% target range.

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