South African equities once again found themselves at the front of the pack in February.
Image: Nicola Mawson / Independent Newspapers
South African equities once again found themselves at the front of the pack in February with FTSE/JSE Capped All Share up 7.2% month on month (m/m). Year to date gains of 11% placed the JSE among the top-performing major markets globally, trailing only Japan and Brazil’s stock markets both up 17% year to date. Over one year, when measured in US dollar terms, the JSE up 82% is the best-performing major stock exchange, rising almost four times faster than global stocks over that period with the MSCI World up 22%. The measurement in US dollar terms is flattered by a 17% appreciation in the local currency against the greenback over the past year, including a boost of 1.3% in February.
Precious metal shares were once again a key driver of returns for the month, contributing 60% of February’s JSE index returns with strong commodity price gains with gold and platinum both up 8% m/m driving share price performance with gold miners up 16% m/m and platinum miners up 12% m/m. The precious metals price strength belied a volatile underlying trend, with the gold price dropping 14% from its late January high of $5,420/oz in just a week at the start of February before rallying 13% to $5,300/oz at month-end.
The biggest detractors from the JSE’s February performance were investment conglomerates Naspers down 11% m/m and Prosus down 12% m/m as the pair more than doubled their year to date share price declines. Their largest investment, Chinese tech conglomerate Tencent, down 15% m/m, was a key source of pain as China’s tech companies experienced their worst monthly performance in over two years.
Amongst the companies geared to the domestic economy, banks up 8% m/m and insurers up 7% m/m performed well. Nedbank, up 19% m/m, was the standout performer amongst the banks, rallying as management’s guidance on the company’s earnings per share range post the Ecobank disposal was comfortably ahead of expectations. Discovery, up 11% m/m, led the insurers with their management referring to robust results and strong overall performance, with Discovery Bank turning profitable. Struggling food retailers Pick n Pay, down 19% m/m and SPAR, down 21% m/m both delivered disappointing trading updates in February as signs of a turnaround prove elusive for the pair.
On the macro front, Finance Minister Enoch Gondongwana’s latest South African Budget was generally well received, with the country set to continue a path of fiscal consolidation without major tax increases, thanks in large part to a commodity-driven tax windfall and improved revenue collection. South Africa’s budget deficit is expected to narrow, and debt is likely to peak soon. The South African government’s 10-year borrowing rate remained around its 10-year lows of 8% per annum.
Emerging market (EM) shares extended their year to date lead over their developed market (DM) peers into double digits with the MSCI EM up 5.5% m/m and up 15% in the year to date. The EM outperformance was driven by commodity-producing countries such as Brazil up 4.1% m/m and South Africa up 7.2% m/m. It came despite a struggling Chinese tech cohort (Tencent, Alibaba, Meituan and Baidu down 15%, 16%, 17% and 19% m/m, respectively). Baidu reported revenue declines for the third consecutive quarter while intense competition amongst the Chinese internet retailers appears to be eroding profitability, with rumours of higher VAT for online transactions further souring sentiment towards the sector.
Peter Little is a fund manager at Anchor Capital.
Image: Supplied
Peter Little, Fund Management, Anchor Capital
*** The views expressed here do not necessarily represent those of Independent Media or IOL.
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