May local commentary: The JSE ekes out a tiny gain

The South African (SA) stock market bounced back from its April wobble, recording a gain in May (FTSE/JSE Capped SWIX +0.5% MoM) as it rallied alongside global markets in the last few days of the month, clawing its way back into positive territory from a 6% MTD drawdown. The local banks were amongst the best performers (+6% MoM), while at the other end of the scale general retailer stocks (-5% MoM) disappointed, with Massmart (-12% MoM) the worst-performing among these as management highlighted weak YTD sales in its trading update and suggested that it is still battling the fallout of last year’s civil unrest along with higher import costs related to global supply chain disruptions. Miners were a mixed bag in May, with diversified miners rallying (+5% MoM) as industrial metal prices staged a recovery on the prospect of Chinese stimulus and economic normalisation post the zero-COVID policy lockdowns. Sasol (+6% MoM) also rallied alongside surging oil prices (Brent crude +12% MoM).

The gold price fell during the month (-3.1% MoM) dragging the share prices of gold miners with it (-23% MoM), though part of the sector’s drawdown was self-inflicted with Gold Fields (-30% MoM) announcing plans for a c. R100bn all-share purchase of Canadian gold miner, Yamana, which left investors clearly unimpressed. Naspers and Prosus (+6% MoM in aggregate) delivered their first positive monthly return of the year on signs that the worst of the regulatory headwinds might be behind them and the prospect that Chinese government stimulus might provide a much-needed tailwind.

The SA rand rallied slightly against the US dollar (+1.1% MoM) as the greenback had a softer month against most currencies. S&P Global Ratings affirmed SA’s sub-investment grade rating in May, but unexpectedly upgraded the outlook from stable to positive as structural reforms, contained fiscal expenditure and favourable terms of trade may ease the country’s fiscal and external pressures. The SA Reserve Bank (SARB) took a leaf out of the US Federal Reserve’s (Fed’s) most recent playbook, doubling the pace of rate hikes with a 0.5% rate increase announced at its meeting in May as it sought to get ahead of inflationary pressure. SA’s most recent inflation data (for April), released the day prior to the SARB meeting, saw headline inflation (5.9% YoY) flirt with the upper band of the SARB’s target inflation range (3% to 6% YoY), but in a sign that the volatile food and energy components were the biggest inflationary culprits, core inflation (+3.9% MoM) remained below the midpoint of the SARB’s target range. The yield on SA 10-year government bonds followed global yields marginally lower during the month but remained above 10% (10.3% at month-end).


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