South African (SA) equities were amongst the best performing in emerging markets (EMs) in June (FTSE/JSE Capped SWIX Index +4.2% MoM). A worse-than-expected performance by the African National Congress (ANC) in SA’s May elections ushered in the unexpected prospect of a centrist coalition government led by the country’s two most popular political parties, the ANC and the Democratic Alliance (DA), bringing with it the hope of much-needed structural reform for SA. Stocks geared to the domestic economy were the key beneficiary of improving sentiment. Banks and insurers (both +16% MoM) rallied alongside general and discretionary retailers (+14% MoM and +18% MoM, respectively) and domestically skewed real estate investment trusts (REITs), Growthpoint (+11% MoM) and Redefine (+12% MoM).
The local currency was also a significant beneficiary of the improving SA sentiment, overcoming a strong US dollar to make it one of the best-performing major global currencies in June (+3.3% MoM). The rand ended 1H24 as the only major currency (besides the heavily sanctioned Russian rouble) that has strengthened against the US dollar YTD (+0.9%). The strong rand acted as a headwind to the performance of JSE-listed stocks with predominantly foreign earnings, with that cohort weighing on the JSE’s performance in June. Investment conglomerates Naspers and Prosus (-4% MoM) could not overcome the currency headwind and lacklustre sentiment towards Chinese investments. JSE-listed miners shaved 1% of the FTSE/JSE Capped SWIX performance for June as weak commodity prices dragged the sector down. Miners with significant iron ore exposure were amongst the worst performing as the iron ore price fell 6% MoM, leaving the metal price 23% lower YTD.
SA’s latest inflation data was essentially in line with expectations as core inflation (+4.6% YoY) hovered around the mid-point of the SA Reserve Bank (SARB) target range (4.5%) for the second consecutive month. While the inflation data did nothing to change investors’ expectations with regards to the path of the country’s benchmark rate (which is expected to track global central bank rates in remaining elevated for longer), the government’s 10-year borrowing rate fell c. 0.8% to 11.4% p.a. as the country’s perceived credit risk improved. The drop in SA’s long-term borrowing rates boosted the performance of the FTSE/JSE All Bond Index (+5.2% MoM).
