January Local Commentary: The JSE has a tough start to the year

South African (SA) stocks experienced a tough start to the year (FTSE/JSE Capped SWIX Index -2.9% MoM), following emerging market (EM) peers lower in January. Mining shares were one of the biggest detractors of the JSE’s January performance, down 7% in aggregate, dragged lower by weak commodity prices. Companies geared towards the domestic economy were another source of pain for the local bourse (-4% MoM in aggregate), with telcos MTN (-17% MoM) and Vodacom (-12% MoM) amongst the most disappointing, both casualties of currency devaluations impacting their African operations. The discretionary retailers were a rare bright spot amongst the domestically focussed companies. Mr Price (+9% MoM) stood out in that grouping, with its latest trading update surprising positively, with same-store sales up 8% YoY.

The rand-hedge component of the local bourse (companies with predominantly offshore earnings) was a rare bright spot (+3% MoM), helped at least partially by a weaker domestic currency. The rand was down 1.7% MoM against a strong US dollar. Luxury goods company Richemont was the standout performer amongst the rand hedges (+10% MoM). Shares in the luxury goods sector had been struggling in the six months leading up to the latest Richemont trading statement, and the strong share price reaction on a marginally better-than-expected trading update is perhaps a sign that sentiment around the sector had become overly negative, while operational momentum has remained robust. The listed property sector carried its strong momentum into 2024 (+4% MoM in January), starting the year off well after a multi-year period of disappointing returns.

The SA Reserve Bank (SARB) kept the country’s benchmark interest rate unchanged at its January meeting – the fourth consecutive meeting without a rate change. SA inflation data released in the runup to the SARB’s latest meeting showed that the country’s core inflation remained stable at the mid-point of the SARB’s target range (4.5% YoY). SA’s 10-year government bond yield ended the month unchanged (11.4% p.a.), following a similar path to global yields, which also spiked intra-month and then faded into month end.

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