A focus on reforms
Credit ratings agency Fitch retained South Africa’s current credit rating and stable outlook, reflecting that the debt/GDP trajectory presented in the Medium-Term Budget Policy Statement (MTBPS) is optimistic and that greater confidence in an improved medium-term growth outlook is required to make ratings changes. In contrast, S&P upgraded the outlook for South Africa to positive from stable, citing the potential for reforms to lift economic growth, with added impetus from the Government of National Unity (GNU). Later in the month, however, S&P placed Transnet on credit watch with negative implications due to the view that the entity will require external support (possibly further guarantees from government) to meet obligations while allowing time for the turnaround plan to deliver improved financials. 

South Africa labour data showed an improvement in the third quarter. Local business and consumer confidence gauges also improved, reflecting cautious optimism on reforms, benefits from the two-pot withdrawals and the GNU. The durability of these improvements will largely depend on implementation of reforms and improved business activity. South Africa issued two Eurobonds in the international markets to strong demand, with the issuance 2,5 times oversubscribed.
 

Domestic assets delivered mixed results, digesting possible implications for South Africa after US elections, amongst others, trade agreements like AGOA and a stronger US Dollar. Nonetheless, the FTSE/JSE All Bond Index gained 3,0%, bringing the returns year to date to 17,6%. The property sector regained ground, returning 1,7% over the month, leaving the 12 month returns at 41,2%. The Rand depreciated against a stronger US dollar by 2,8%, bringing the appreciation year to date to 1,3%.

Local equity markets lost ground over the month, with the FTSE/JSE All Share returning -0,9%. Resources were a key contributor with negative returns of -6,7% while industrials (0,0%) and financials (0,3%) were largely flat over the month. Small cap stocks (3,6%) outperformed large and mid-cap stocks, pricing in local optimism. From a sector perspective, tobacco took the top spot, benefitting from a stronger US dollar while retailers (+7,1%) were not far behind with corporates like Pepkor, Mr Price and TFG delivering double digit returns.