July was a tough month domestically as South Africans faced mid-winter with movement and economic activity severely restricted because of surging COVID-19 cases which exceeded peak infection rates experienced in previous waves. While hospitals were struggling to deal with increasing COVID-19 cases, the security forces struggled to contain unrest across large parts of Gauteng and KwaZulu Natal, sparked initially by protests in response to the incarceration of former president, Jacob Zuma, who was sentenced to jail time for his refusal to testify at the state capture commission. Protests quickly turned violent and evolved into wide-scale looting and vandalism, resulting in over 300 deaths and multiple billions of rand worth of damage and lost economic output.
Despite the upheaval, the local bourse was able to end the month higher (JSE/Capped SWIX +2.6% MoM), with the bulk of the returns coming from the mining companies, which ended the month up c. 11% as gold, platinum, and diversified miners all experienced double-digit returns. The diversified miners were able to deliver strong returns even as the price of iron ore fell, with their valuations already reflecting expectations for significantly lower commodity prices. Rand-hedge stocks benefited from a slight currency tailwind as the rand declined by 2% MoM against the US dollar, while the biggest detractors from performance were property stocks, insurers, and Naspers and Prosus. Domestically exposed property stocks and insurers were the sectors which experienced the biggest direct impact from the unrest and were unsurprisingly amongst the biggest losers. Naspers and Prosus fell by c. 6% in aggregate as their biggest exposure is to Chinese tech giant, Tencent, which fell 16.4% MoM in rand terms as it suffered from the fallout of the Chinese regulatory crackdown on tech businesses.
SA government bond yields initially spiked in response to the unrest but, as the violence subsided, local yields followed global yields lower as the SA 10-year government bond yield ended the month 0.1% down at 9.1%. The SA Reserve Bank (SARB) meeting during the month left rates unchanged, in line with expectations as the latest core inflation data for June (+3.2% YoY) remained anchored around the bottom of the SARB’s target range.