March Local Commentary: Gold and PGM shares help buoy the JSE to positive territory

The South African (SA) bourse was the best performing amongst major emerging market (EM) peers (FTSE/JSE Capped SWIX Index +2.9% MoM) in March, as it clawed its way back towards positive territory (the FTSE/JSE Capped SWIX is still down 2.3% YTD). Gold miners (+24% MoM) were a major boost to the JSE’s performance as shares of these miners tracked the price of the yellow metal higher (+9% MoM), with the gold price regularly posting new all-time highs during the month. Platinum group metal (PGM) miners (+11% MoM) also benefitted from March’s bounce in metal prices. PGM and gold miners were responsible for more than 2% of the FTSE/JSE Capped Swix’s performance in March.

Shares geared towards the domestic economy generally disappointed, particularly financial companies. Discovery (-11% MoM) announced disappointing 1H24 results during the month as adjustments related to new reporting standards (IFRS 17) added complexity to its earnings, predominantly in the life insurance division, which resulted in its embedded value dropping by 22%. Standard Bank (-8% MoM) also had a disappointing month, as the release of its FY23 earnings was accompanied by a lacklustre outlook for FY24 earnings growth. Diversified miners held up surprisingly well, given their exposure to iron ore, which tumbled 18% MoM to leave the metal 28% lower YTD. China, the world’s biggest iron ore consumer, has recently urged steel mills to reduce production intensity, and Chinese port holdings of iron ore surged 14% in 1Q24 as the nation’s real estate sector continues to struggle.

SA economic data released during the month showed the country narrowly avoiding a recession in 4Q23 (+0.1% QoQ), while the latest inflation data came in marginally higher than expectations, with core inflation (+5% YoY) jumping relative to the prior month’s print (+4.6% YoY) and climbing above the South African Reserve Bank’s (SARB) target midpoint (4.5% YoY). The spike in prices was primarily a result of the inclusion of the results of the bi-annual survey of medical health insurance costs, which came in at an annualised rate of 12.9%. As expected, lingering inflationary pressure (locally and globally) allowed the SARB to keep the current elevated repo rate (8.25% p.a.) on hold. The rand was amongst the stronger EM currencies relative to the US dollar in March (+1.7% MoM). However, borrowing rates for the SA government climbed, defying a relatively benign global interest rate environment. The SA 10-year government borrowing rate advanced by 0.6% to end the month at 12.3%.

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