December local commentary: The JSE ends the year on a strong note

The JSE ended the year strongly as concerns around the Omicron COVID-19 variant receded and global risk assets rallied into year-end. The FTSE/JSE Capped SWIX bounced by 4.9% for December, ending the year 27% higher – the strongest year for the local bourse since 2012. There were gains across the board in December, and it was only really the gold miners (the star performers in November) that were a drag – down 6% MoM. For the year, there were contributions across the board, with the only major laggards being Naspers and Prosus, which were down 18% YoY dragged lower by the poor performance of their largest underlying investment, Chinese tech conglomerate Tencent (-12% YoY measured in rand terms) as regulatory reform in China weighed on sentiment.

Some of the best performers in 2021 were coal miner, Thungela (+286% YoY), driven higher by surging coal prices as a result of a Northern Hemisphere energy crunch, MTN (+183% YoY) as it made progress in spinning-off its non-core assets and improving the state of its balance sheet, Investec (+152% YoY) as it also made progress on tidying up its balance sheet and focussing its strategy, and the hospitality companies, Tsogo Sun Hotels, Sun International, Tsogo Sun Gaming and City Lodge (+141%, +130%, +128%, and +116% YoY, respectively) as the prospect of normalising leisure travel returned.

South African (SA) 10-year government bond yields recovered in December, rallying back below 10% to end the year at 9.8% – only fractionally higher than where they started 2021 (9.7%). Inflation came in at 5.5% for November, in line with expectations and still comfortably within the SA Reserve Bank’s (SARB’s) 3%-6% target range.

However, 3Q21 GDP was a disappointment, coming in at 2.9% YoY, well below expectations (3.8% YoY), and still below pre-pandemic levels, with current economic output at levels similar to 2016. The weaker-than-expected GDP print was largely a function of a worse-than-expected impact on economic activity from the July unrest. The local currency was marginally weaker for the month (-0.4% MoM), leaving it down 7.9% for 2021 against the US dollar, which fared well against most currencies in 2021.

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