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June 2024 market review: South Africa
The Reserve Bank’s Monetary Policy Committee (MPC) left the repo rate unchanged. Read the full South African market review.
SA market performance:
Local indices rallied as the ANC led Government of National Unity (GNU) agreement with the DA and smaller parties took shape in Parliament with expectations this would filter through to the cabinet. The Top 40 (+3.7%), All Share (+4.1%) and Capped Swix (+4.2%) all saw positive gains for the month. Bonds outperformed however, with the ALBI (+5.2%) rallying on news of the Government of National Unity. The ZAR strengthened over the month while R214 yields declined by 26bps to 11.9%. Key sector leaders were: General Retail (+17.1%) and Banks (+16.2%) with key performing names including Foschini (+34.2%) & Capitec (+23.4%). Underperforming sectors include Industrial Materials (-9.3%), Oil, Gas and Coal (-5.6%) and Industrial Metals and Mining (-4.8%). MSCI South Africa rallied 9.2%, outperforming MSCI World (+1.9%) and MSCI EM (+3.6%) in USD terms.
SARB rate decision:
The Reserve Bank’s Monetary Policy Committee (MPC) left the repo rate unchanged at 8.25% and remains cautious. Market expectations remain for two interest rate cuts of 25bps each towards the end of this year.
SA macro:
Credit growth increased for the month of May, with Private sector credit extension (PSCE) growth at 4.3% in May from 3.9% in April. Any interest rate relief would be beneficial to this growth driver for the economy. GDP for 1Q24 came in below market expectations, contracting 0.1% q/q. The Standard Bank Whole Economy PMI showed marginal deterioration in June at 49.2. Year on year vehicle sales (-14.0%) growth remains in negative territory, reflecting the high interest rate environment and constrained consumer conditions. Eskom has reached three straight months with no power cuts, with performance in the grid boosted by the addition of 800MW of capacity from Kusile’s unit 5 coming back online.
SA Politics:
The known unknown at the end of last month was what South Africa’s political structure and affiliations would be. A government of national unity (GNU) has been formed and after multiple starts and stops (causing short-term currency volatility), an expanded cabinet has been announced.
We now look for evidence of growth friendly reforms and implementation. The USDZAR began the month at 18.8 dipping below 18.0 on the announcement that a GNU would be formed and then spiked to just below 19.0 on news that negotiations between the ANC and the DA were faltering, ending the month at 18.0 following the cabinet announcement. For interest, and a slightly longer-term perspective, the rand is 0.2% stronger relative to the dollar year-to-date.
As always, we remain committed to providing you with the best possible investment outcomes while remaining true to our long term, well considered approach, and making sure that portfolios are positioned appropriately for a variety of likely outcomes.
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