February local commentary: Another positive month on the JSE as miners lead the way

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The South African (SA) stock market had another strong month (FTSE/JSE Capped SWIX +2.7% MoM), leaving it amongst only a few major global markets to end February in positive territory (Brazilian Bovespa +0.9% MoM, Shanghai Composite +3% MoM and FTSE-100 +0.3% MoM). YTD, the performance of the local bourse (+7.6% in US dollar terms) is second only to the Brazilian stock market (+16% YTD in US dollar terms). There were several trading updates during the month which meaningfully impacted share prices, including Wilson Bayly Holmes-Ovcon (WBHO; -25% MoM), which surprised the market by announcing that it will liquidate its Australian operations, Telkom (-17% MoM), which reported slowing mobile subscriber growth, and Tiger Brands (-11% MoM), which reported lower bread volumes and margin compression due to its inability to recover cost increases.

At the other end of the spectrum, the banks released better-than-expected trading updates, showing strong earnings momentum and likely more benign credit losses than anticipated (Nedbank +15% MoM, Standard Bank +9% MoM and FirstRand +7% MoM). The miners were another source of strong performance in February (+17% MoM in aggregate), with gold miners leading the way (+29% MoM) as the price of gold rallied 6% MoM, with investors turning to perceived safe-haven assets on fears related to the conflict between Russia and Ukraine. Platinum miners (+25% MoM) followed platinum group metal (PGM) prices higher, initially on optimism around decreasing supply chain constraints driving increasing vehicle production, but later in the month on the back of fears that Russia (which produces c. 44% of global palladium and 14% of platinum) might struggle to export PGMs because of the conflict.

Sasol, which should have been a huge beneficiary of a higher oil price, offset that tailwind with the release of earnings which showed disappointing execution. Naspers and Prosus continued to weigh heavily on the local bourse (-22% and -26% MoM, respectively), declining by more than double the rate of their biggest investment, Tencent (-11% MoM in SA rand terms). The pair have now lost almost half of their value in the past year. The continued softness in Tencent can at least partially be ascribed to the ongoing interference of the Chinese government in the operating models of large Chinese tech companies, the latest blow coming from a guideline from the Chinese government for food delivery companies like Meituan (c. 20% owned by Tencent) to cut the fees it charges restaurants.

SA inflation data released during the month were largely in line with expectations (+5.7% YoY or +3.5% YoY, when excluding the volatile food and energy prices). The national budget speech delivered during the month by Finance Minister Enoch Godongwana, contained no material surprises with the windfall from higher commodity prices being used to reduce debt and fund temporary social relief grants, while fiscal consolidation remains intact. The local currency ended the month largely unchanged (+0.1% MoM) as did the yield on 10-year government bonds (9.8%).

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