Local market commentary: After four consecutive monthly gains, the JSE falters in August

After four consecutive monthly gains, the FTSE/JSE Capped SWIX Index faltered in August falling 0.9% MoM. There were not many bright spots on the JSE, with the exceptions predominantly coming from the mining sector again. The diversified miners benefitted from a 15% rally in the iron ore price that drove the commodity to $125/tonne – the highest level since early 2014. Platinum group metals (PGMs) also rallied during August, boosting most platinum miners. Gold miners, which have led the way for the local bourse YTD, took a breather after the gold price could not hold onto brief gains above $2,000/oz as slightly higher US long-term rates dulled the metal’s appeal. The fortunes of Naspers and Prosus diverged during the month with the former down 1.7% and the latter up 3.1% MoM. It was another poor month for South African (SA) financial companies as locally listed bank were down 3.6% MoM and SA-listed insurers fell 4.5% MoM in August to leave those sectors down 40% and 27% YTD, respectively.

The rand continued its slow grind higher from its April lows, where it spent some time above the R19/US$1 level, strengthening 0.8% for the month to end August at R16.94/US$1. The rand strength was mostly a function of US dollar weakness as the greenback fell against most major currencies, dropping by 2.2%, 1.3% and 1% MoM against the British pound, the euro and the Swiss franc, respectively. The rand ended August still 16.6% lower against the US dollar YTD and 21.2% lower YTD against the euro.

After dropping below the SA Reserve Bank’s target range (of 3% to 6%) for May and June, SA inflation jumped back above 3% for July (3.2% YoY) as fuel price hikes took hold, although this was largely in-line with expectations. SA government bond yields strengthened marginally for the month, with 10-year government bond yields ending August at 9.26%.

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