November Local Commentary: The JSE benefits from a substantial shift in investor sentiment

The South African (SA) stock market benefitted from a substantial shift in investor sentiment in November (FTSE/JSE Capped SWIX Index +8.3% MoM), recouping most of the losses incurred in the three months leading up to November. Investment conglomerates Naspers and Prosus were among the biggest winners on the JSE last month (+19% MoM in aggregate), dragged higher by the performance of their largest investment, Chinese tech conglomerate Tencent (+14% MoM in rand terms). Tencent defied a generally tough environment for Chinese shares as it reported better-than-expected results, highlighting a renewed focus on profitability and the quality of revenue growth. Capitec also experienced a noteworthy month (+18.5% MoM) with strong results and particularly encouraging growth in transaction fee income. Harmony Gold mining was another standout performer in November (+35% MoM), and while the rand price of gold (+23% YTD) has provided a solid tailwind to earnings, the company’s November trading update also showed a better-than-expected operating performance. Bidvest (-11% MoM) was one of the month’s biggest underperformers as a disappointing trading update revealed muted operational performance, with volumes and margins falling more than anticipated. Energy counters also underperformed (Sasol -11% MoM, Thungela -13% MoM) as lacklustre economic activity in China (one of the biggest energy importers) weighed on energy prices (Brent crude oil -5% MoM).

A larger-than-expected spike in SA headline inflation (+5.9% YoY), driven predominantly by volatile food and energy prices, was in sharp contrast to the continued grind lower in core price increases (+4.4% YoY). Core price inflation dropped below the SA Reserve Bank’s (SARB’s) target mid-point (4.5%), and this was enough to convince the SARB to hold rates steady at 8.25% for the third consecutive meeting, keeping the country’s benchmark interest rate at the highest it has been since 2009.

The SA government’s 10-year bond yield followed global bond yields lower, ending the month at 11.6% p.a. However, the local currency was unable to capitalise on general US dollar weakness, falling 1.1% MoM against the US dollar.

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