South African (SA) equities experienced a third consecutive positive month in May (FTSE/JSE Capped SWIX Index +0.9% MoM) despite a post-election wobble that shaved 2.4% off the index’s monthly performance in the last few days of May. SA’s National and Provincial Elections saw the ruling ANC comfortably lose its majority, achieving c. 40% of the national vote, ushering in the necessity of a coalition government. Newcomer M.K. garnered c. 15% of the national vote and the numerous potential coalition permutations introduced a reasonable degree of uncertainty about the shape of SA’s future government, driving domestic asset values slightly lower into month end.
Outside the wobble in local equities into month end, the rand fell c. 3% against the US dollar post-elections, leaving the local unit 0.1% MoM weaker against the greenback in a month where the US currency was softer against most other major global currencies. SA government bonds were also on track for a decent month, tracking global bonds higher before a post-election pullback saw the SA government’s 10-year borrowing rate edge higher, leaving it unchanged at 12.2% p.a. at month end.
Local companies with earnings geared towards the domestic economy were generally slightly weaker in May, though, as always, there were positive and negative outliers in that cohort. Discovery (-7% MoM) pulled back on the announcement that President Cyril Ramaphosa had signed the National Health Insurance (NHI) Bill into law, while Woolworth saw its share price suffer (-9.5% MoM) after warning that its next results announcement would see earnings decline by more than 20% YoY. Pick n Pay was a positive outlier as investors looked through a disappointing earnings update, and the share price bounced (+23% MoM) as investors responded positively to the company’s turnaround plan and news that its controlling shareholder (the Ackerman family) would relinquish control.
Amongst the miners, platinum miners (+6.2% MoM) were the biggest mover, helped by an 11% MoM increase in the platinum price. Shares with predominantly non-SA earnings generally delivered a positive contribution, including a 4% MoM rally in the value of investment conglomerates, Naspers and Prosus. Luxury goods company Richemont (+13% MoM) was also a significant positive contributor in May as it released FY24 results, which showed a continued strong performance from its key jewellery division, while the specialist watchmakers division saw margins hold up well despite concern about the potential for weakness in consumer spending from a high COVID-19 base.
The SA Reserve Bank (SARB) kept the country’s interest rate flat at its late May meeting (as expected) even as SA’s latest inflation data came in slightly below expectations (core inflation +4.6% YoY).
