South African (SA) equities continued their strong post-election run, with the FTSE/JSE Capped SWIX Index recording a 1.3% MoM increase. Despite the local bourse being weighed down by miners (-10% MoM), which were a 2.3% drag on the monthly index performance, stocks geared towards the domestic economy (+6% MoM) were the best-performing cohort, having rallied c. 26% over the past three months on improving sentiment towards domestic investments. Standout performances amongst the domestically focussed stocks in August came from Mr Price (+12% MoM) and ABSA (+10% MoM), with the latter releasing disappointing results (as expected). Still, investors were encouraged by ABSA’s announcement of upcoming leadership changes. Cell phone companies Telkom (+20% MoM) and MTN (+12% MoM) were also amongst the best performers on the JSE. Telkom was buoyed by a trading update that showed market share gains in Telkom Mobile, with MTN’s trading statement including positive details about the renegotiation of tower leases.
Precious metal miners were the worst-performing miners in August, with gold miners (-11% MoM) and platinum miners (-18% MoM). The performance of the gold miners came despite a stronger gold price (+2.3% MoM in US dollar terms), with the sector disproportionately impacted by Gold Fields (-22% MoM), which saw its share price slump as it lowered its production guidance for the second time in three months because of operational challenges at its SA and Chilean mines. Platinum miners’ share prices tumbled as earning announcements exposed the extent of the earnings declines resulting from lower metal prices, with Northam CEO Paul Dunne saying that current prices made the industry unsustainable in SA, the world’s largest platinum producer.
The South African government’s 10-year borrowing rate continued to follow global funding rates lower, ending August at 10.6% p.a., well below the 12%-plus p.a. level it was trading at pre-elections. The latest local inflation data also boosted the prospect of the SA Reserve Bank (SARB) following the anticipated rate-cutting cycle of its major global central bank peers. SA core inflation rose 4.3% YoY in July, below the midpoint of the SARB’s target range and consensus economist expectations – both at 4.5% YoY. The local currency had a tough start to the month, falling 1.7% against the US dollar in the first few days of August as an unexpectedly hawkish Japanese central bank catalysed the unravelling of popular carry trades (borrowing at low yen funding rates to lend in high-yielding currencies). However, the rand fought its way back against a generally weaker US dollar to end August 2.2% higher MoM against the greenback.
