South African (SA) equity markets struggled along with global equity markets in February (FTSE/JSE Capped SWIX Index -0.4% MoM). Amongst the domestic companies, the insurers stood out (+9% MoM), with Discovery (+14% MoM) and Outsurance (+13% MoM) leading the way. Discovery’s trading update said that profits are expected to rise by 25%-30% YoY, well ahead of analyst expectations for 15% YoY growth. Telcos were another bright spot (+4% MoM), with Vodacom (+6% MoM) releasing results which showed some growth in the domestic market and waning FX headwinds in its African regions. Meanwhile, Telkom (+8% MoM) reported earnings numbers reflecting sustained momentum in mobile earnings.
The Naspers and Prosus (+12% MoM) complex was another standout performer on the JSE. This was despite the announcement that they would purchase the food-delivery group Just Eat, which took some of the shine off an otherwise stellar performance from their largest underlying investment, Chinese tech conglomerate Tencent (+19% MoM). Tencent rallied as China’s President Xi Jinping met with private sector leaders in a sign that the long-marginalised private sector was now being seen as key to reviving the country’s economy. The standout performer on the JSE in February was global brewer AB InBev (+21% MoM). It delivered results showing strong margin improvement in the key South American region and better-than-expected cash generation, which will aid in unwinding its elevated leverage.
Politically, the country had a challenging month, both domestically and globally. Early in February, SA found itself in the crosshairs of the US administration as President Donald Trump pledged to cut aid to the country due to what he deemed discriminatory land policies. Later in the month, domestic politics caught investors off guard as the eagerly awaited budget speech was postponed at the eleventh hour. Finance Minister Enoch Godongwana had apparently failed to clear the budget he was about to present with his partners in the Government of National Unity (GNU), who were unhappy about his planned 2% VAT hike. The budget speech was postponed to 12 March.
The SA government’s 10-year borrowing rate climbed to 10.5% p.a. despite generally lower global yields due to a combination of risk aversion and geopolitics. The rand also weakened slightly (-0.2% MoM) against the US dollar.
