October local commentary: JSE follows global markets higher

The JSE Follows The Global Markets Higher

The South African (SA) stock market followed global equity markets higher in October (FTSE/JSE Capped SWIX +5.3% MoM), with most parts of the domestic market contributing positively. The main area of disappointment came from investment companies Naspers and Prosus (both down 16% MoM), dragged lower by their main underlying investment, Chinese tech company Tencent (-22% MoM in rand terms). This, as the share prices of foreign-listed Chinese corporates, plunged in the wake of the Chinese Communist Party’s congress as foreign investors baulked at the trajectory that China’s top leadership is taking. President Xi Jinping cemented a much-anticipated third, five-year term in office, though with an unexpectedly aggressive consolidation of power as he packed the country’s senior leadership (the seven-member Politburo Standing Committee) with loyalists and moved to oust those deemed more moderate.

Other areas of weakness for the month were Telkom (-21% MoM), as MTN appeared to walk away from a deal to acquire it, and Thungela (-13% MoM), as the local bourse’s top-performing share YTD showed signs of weakness in the face of a 24% drop in the price of export coal. The banks were amongst the best-performing sectors in October (+16% MoM), led higher by Investec (+27% MoM) as the announcement of share buybacks helped it recover strongly from a disappointing September. Encouraging results from Standard Bank helped buoy its share price (+20% MoM). Listed real estate also fared well last month (+11% MoM). Despite lacklustre metal prices in October (iron ore -14% MoM), miners fared reasonably well, with the platinum miners (+9% MoM) helped by higher platinum prices (+8% MoM), while Glencore (+11% MoM) was up on the back of a decent production update and Sasol (+8% MoM) followed the oil price (+8% MoM) higher.

On the economic front, headline inflation (+7.5% YoY) dropped for a second consecutive month. However, core inflation (excluding the volatile food and energy categories) drifted higher (+4.7% YoY), edging above the midpoint of the South African Reserve Bank’s (SARB’s) target (4.5%) as inflation showed signs of spreading beyond food and energy prices. Finance Minister Enoch Godongwana delivered a prudent medium-term budget policy statement (MTBPS) during the month, showing fiscal restraint despite better-than-expect tax receipts. South African 10-year bond yields ended the month unchanged, at already elevated levels (11.3%) despite global yields generally pushing higher during the month. The local currency fell further against the US dollar during October (-1.5% MoM), leaving it 13% weaker against the greenback YTD despite weakening only 2% in the first half of the year.

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