Peter Little
South African (SA) equities were among the best performing in emerging markets (EMs) in June as seen on the FTSE/JSE Capped SWIX Index, which was up 4.2% month on month (m/m).
A worse-than-expected performance by the ANC in SA’s May elections ushered in the unexpected prospect of a centrist coalition government led by the country’s two most popular political parties, the ANC and the DA, bringing with it the hope of much-needed structural reform for SA.
Stocks geared to the domestic economy were the key beneficiary of improving sentiment. Banks and insurers both rose 16% m/m and rallied alongside general and discretionary retailers (up14% m/m and +18% m/m, respectively) and domestically-skewed real estate investment trusts (REITs), Growthpoint (up 11% m/m) and Redefine (up 12% m/m).
The local currency was also a significant beneficiary of the improving SA sentiment, overcoming a strong dollar to make it one of the best-performing major global currencies in June (up 3.3% m/m).
The rand ended the first half of 2024 as the only major currency (besides the heavily sanctioned Russian rouble) that has strengthened against the dollar in the year to date, up 0.9%.
The strong rand acted as a headwind to the performance of JSE-listed stocks with predominantly foreign earnings, with that cohort weighing on the JSE’s performance in June.
Investment conglomerates Naspers and Prosus, which slid 4% m/m could not overcome the currency headwind and lacklustre sentiment towards Chinese investments.
JSE-listed miners shaved 1% of the FTSE/JSE Capped SWIX performance for June as weak commodity prices dragged the sector down. Miners with significant iron ore exposure were among the worst performing as the iron ore price fell 6% m/m, leaving the metal price 23% lower year to date.
SA’s latest inflation data was essentially in line with expectations as core inflation (up 4.6% year on year) hovered around the mid-point of the SA Reserve Bank (SARB) target range at 4.5% for the second consecutive month.
While the inflation data did nothing to change investors’ expectations with regard to the path of the country’s benchmark rate, which is expected to track global central bank rates in remaining elevated for longer, the government’s 10-year borrowing rate fell 0.8% to 11.4% a year as the country’s perceived credit risk improved.
The drop in SA’s long-term borrowing rates boosted the performance of the FTSE/JSE All-Bond Index, which rose 5.2% m/m.
Peter Little is a fund manager at Anchor Capital.
BUSINESS REPORT