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Ok. Got itEverything is connected when it comes to your wealth. Read a review on the rand, inflation and the sectors that drove markets in May.
South Africa has been acutely aware of the slow but steady start to its vaccination efforts, as the country prepares for the winter months and the expected third wave of infections. Rising Covid-19 cases across the country prompted a move back to adjusted Alert Level Two restrictions at the end of the May and President Ramaphosa clarified the regulatory delays responsible for the holdup in the Johnson & Johnson Sisonke trails.
In line with global trends, the April inflation print showed a meaningful pickup to 4,4%, reflecting base effects from pandemic related price declines in 2020, but also persistent price increases from transport cost (mainly fuel) and food prices. The South African Reserve Bank (SARB) kept interest rates unchanged at its April Monetary Policy Committee meeting – a unanimous decision by the committee. While SARB assessed the inflation outlook to be contained over the forecast period, it expressed vigilance and highlighted increased risks. Releasing credit ratings statements over the month, S&P, Moody’s and Fitch left South Africa’s credit rating unchanged, with Moody’s and Fitch retaining their negative outlook.
The rand strengthened by about 5,3% against the US dollar in May, reaching its best level in years, while local bonds benefitted from well supported bond auctions. Currency movements also helped embattled energy provider Eskom, with the company indicating a decrease in debt of about R83 billion, partly helped by exchange rate movements.
The All Bond Index gained 3,7% in May, lifting year-to-date returns to 3,9%. With the inflation debate front and centre of the current market narrative, inflation-linked bonds returned 3,4% over the month.
The FTSE/JSE All Share Index continued its winning streak, gaining a further 1,6%. Domestically exposed counters led the charge with the Small Cap and Mid Cap indices gaining 3,3% and 6,2% respectively relative to the Top 40 (1,1%). The financial sector was the best performing sector over the month, gaining 9,2%. Despite a difficult operating environment, a range of companies are reporting credible financial results, including those primarily exposed to the local economic dynamics. Corporate action also caused undercurrents for bellwethers Naspers (-7,9%) and Prosus (-9,7%) as a proposed share exchange was met with a less than favourable response. News that global industry player Heineken was in discussions with Distell to purchase the majority of their business helped the share price gain 34,5%.