July Local Commentary: The JSE posts robust gains

The South African (SA) stock market rallied alongside global peers in July (FTSE/JSE Capped SWIX Index +4.1% MoM), recording its best monthly return since January. The domestically focussed companies were again the strongest segment, with the discretionary retailers (+13% MoM) and the general retailers (+10% MoM) experiencing double-digit gains for the second consecutive month. Banks (+8% MoM) and insurers (+10% MoM) also delivered a strong contribution in July. Generally higher commodities prices buoyed miners (+3.9% MoM), helped at least in part by the Chinese government’s announcement of its intention to introduce measures aimed at stimulating economic growth, including “adjustments” to the restrictions on activity in the property sector.

The local currency continued to recover from its plunge towards R20/US$1 in May in the wake of US allegations that SA supplied weapons to Russia. The rand ended July at R17.85/US$1, leaving it 5.6% stronger against the US dollar MoM. The stronger local currency acted as a headwind for locally listed companies with offshore earnings, with luxury goods company Richemont (-10% MoM) the worst in that category as the currency headwind combined with the release of slightly disappointing results which included a worse-than-expected slowdown in spending by its US consumers. Investment conglomerates Naspers and Prosus (+3.2% MoM in aggregate) were able to overcome the currency headwind, thanks mainly to the strong performance of their largest investment, Chinese tech conglomerate Tencent (+7% MoM in Hong Kong dollar terms).

SA’s latest inflation data came in lower than expected for the second consecutive month, with core inflation data (+5% YoY) slowing towards the South African Reserve Bank’s (SARB’s) 4.5% YoY target range midpoint. The inflation data released the day before the SARB’s latest interest rate decision was enough to convince a slim majority of Monetary Policy Committee (MPC) members (3 vs 2) to vote against another hike in the policy rate. Local government bonds rallied alongside the currency for the second consecutive month as the benchmark 10-year government borrowing rate dropped to 11.5% at the end of July (having reached 12.5% in May).

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