November local commentary: JSE driven higher by a handful of star performers

The local stock market was one of the few global exchanges to end November in the green (FTSE/JSE Capped SWIX +1% MoM), helped in part by a weaker currency (the rand was down 4% MoM against the US dollar). The country experienced another bout of loadshedding during the month, which was a factor in the South African Reserve Bank’s (SARB’s) decision to revise its GDP growth forecasts lower at its November meeting. The SARB also hiked rates (by 0.25% to 3.75%) for the first time in three years. SA’s October inflation data release (+5% YoY) was in line with expectations as transport and food prices contributed half of the YoY increases.

Finance Minister Enoch Godongwana used his maiden mini-budget speech to reiterate the government’s commitment to fiscal consolidation with a combination of restrained expenditure and structural reforms aimed at lifting growth. He also announced a sizeable revenue overrun, helping government’s debt ratios. Ultimately, the discovery by SA scientists of the Omicron COVID-19 variant, with the associated travel restrictions and the prospect of new mobility restrictions, was the biggest driver of local (and global) asset prices and, along with the drop in the local currency, SA 10-year government bond yields ended the month slightly higher at 10.2%.

While most domestic banks, insurers and discretionary retailers experienced mid-single digit price drops in November, the local bourse was driven higher by a handful of star performers and a standout performance from the gold miners. Local gold miners were up 25% MoM, driven higher initially by a 4% spike in the US dollar price of gold as US inflation reached its highest level in over 30 years. While the US dollar price of gold reversed most of its gains to end the month down, the local gold miners were able to hang onto their strong share price gains.

Individual standout performances came from Richemont (+26% MoM), MTN (+18% MoM), and Investec (+16% MoM). Richemont’s results significantly exceeded expectations, particularly within its watches division and it confirmed plans to spin out its loss-making online business, while MTN released a strong trading update, announced plans to sell down its Nigerian business and its SA towers and got approval for its Payment Service Bank (PSB) in Nigeria. Investec released very strong earnings, with 22% growth in pre-provision operating profit and announced plans to distribute 60% of its shareholding of separately listed asset manager, Ninety-One (reducing its ownership stake to 10%). Naspers and Prosus, meanwhile, were unable to take advantage of the currency tailwind and ended the month 4% lower in aggregate, held back by ongoing negative sentiment around Chinese large-cap tech shares. Local hospitality companies, Tsogo Sun, Sun International and City Lodge were amongst the JSE’s worst performers (-22%, -21% and -18% MoM, respectively).

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