South African (SA) stocks finally stumbled in June, ending a record-breaking streak of seven consecutive positive monthly returns (FTSE/JSE Capped SWIX -3% MoM). There were few places to hide in a month where sentiment turned against cyclical stocks (including emerging markets [EMs]), with property and cell phone companies amongst a rare breed of positive performers in June. The other category to fare well was shares with predominantly offshore earnings, which were aided by a weak local currency (-3.8% MoM against the US dollar). Included in the final grouping was Bidcorp (+6.6% MoM), which rallied after a solid trading update and encouraging guidance.
Unfortunately, the weak currency was not enough of a tailwind for Naspers and Prosus, which were both down for June and have now fallen by 23% and 28%, respectively, from their highs achieved in February. The recent weakness for these counters comes despite June earnings announcements which showed a solid performance from their other e-commerce investments (c. 15% of NAV). However, for now, investors remain focussed on the relatively poor performance of the biggest underlying investment (Tencent) and these holding companies’ inability to find ways to meaningfully unlock the discount relative to the value of the underlying investments.
Amongst the slew of negative performers, the miners were amongst the worst-performing, particularly the gold miners, which lost about a quarter of their value in June on the back of a 7.2% MoM decline in the US dollar price of gold (reversing a similar sized gain in the prior month). Amongst the domestic companies, banks and insurers performed poorly, with the prospect of additional provisions and reserves related to the latest wave of COVID-19 deaths and lockdown restrictions weighing on performance. The spike in new COVID-19 infections, with an increasing proportion of infections from the more contagious Delta variant, forced the government to push the country back into level-four lockdown restrictions late in the month.
Local 10-year government bond yields ended the month largely unchanged, though the journey was not a straight one, with yields having compressed c. 0.3% heading into the US Fed meeting mid-month. On the economic data front, SA continued to report positive terms of trade, with a R54.6bn May trade surplus well ahead of expectations. 1Q21 GDP growth also came in ahead of expectations (4.6% QoQ vs expectations for 3.2%), but still 3.2% below 1Q20.