After seven consecutive positive months, South African (SA) equities finally wobbled in October (FTSE/JSE Capped SWIX Index -0.9% MoM), tracking global markets lower. There were very few hiding places on the local bourse, with precious metals being one of the few areas with positive share price action. Gold shares (+8% MoM) tracked the price of the yellow metal higher, while platinum miners (+16% MoM) were the star performers in the month, boosted by reports that the US had asked its G7 partners to consider sanctions on Russia’s platinum group metals (PGM) exports. Investment companies Naspers (-1.2% MoM) and Prosus (-2.3% MoM) held up relatively well in light of a 9% MoM drop in the share price of their largest investment, Chinese tech conglomerate Tencent (-6.8% MoM when measured in SA rand terms).
Even the rand-hedge component of the SA bourse (companies with predominantly foreign earnings) could not take advantage of the tailwind a weak local currency provided to deliver decent rand share price performance in October. AB InBev (-8% MoM) was one of the shares among that cohort which disappointed. Its results showed disappointing volume growth, while management delivered underwhelming forward guidance. Global luxury goods company Richemont (-7% MoM) was another rand-hedge stock that failed to take advantage of the weaker local currency, with its share price coming under pressure as luxury peers announced disappointing results, weighed down by weak sales to Chinese consumers.
Minister of Finance Enoch Godongwana delivered a Medium Term Budget Policy Statement (MTBPS), which showed continued commitment to fiscal prudence alongside the prospect of a slightly improved economic outlook. Stats SA released the most recent inflation data, which aligned with consensus economists’ expectations. Both headline inflation (+3.8% YoY) and core inflation (+4.1% YoY) remain below the midpoint of the SA Reserve Bank’s (SARB) target range (3%-6%), boding well for the prospect of further rate cuts.
Despite the prospect of lower central bank rates, the SA government’s 10-year borrowing rate matched the 0.5% spike experienced by the US government’s 10-year borrowing rate, leaving the former’s 10-year borrowing rate at 10.6% p.a. at the end of October. The rand weakened against a robust US dollar (-1.9% MoM) in a month where the greenback was stronger against all major currency pairs.
