Lights out
First-quarter GDP printed at 1,9%, exceeding market expectations, with the economy now back at pre-Covid levels. The expansion was broad-based, with strong contributions from the manufacturing and trade sector, and robust consumer spending as the economy reopened. This provides a good starting point for the year and will help offset what looks set to be a tougher second quarter, with weak prints for mining and manufacturing production in April confirming the disruption and damage from the flooding in KwaZulu-Natal, strikes in the mining sector and persistent load-shedding. Local PMI data for May, however, suggests a lingering impact but also recovery post the natural disaster. A record decline in business confidence for the second quarter echoed the above pain points.

Loadshedding at Eskom worsened in June, in part due to industrial action amid tense wage negotiations. More constructively, the utility announced 18 winning bids for renewable projects in Mpumalanga, which will lease land from Eskom and generate an estimated 1 800 MW of energy to be wheeled across the grid. While this will not alleviate the immediate energy crisis, it is illustrative of the energy reforms slowly being enacted. 
 

Headline inflation surprised to the upside at 6,5% y-o-y in May, a breach of the 6% upper target of the South African Reserve Bank and the highest figure since 2017. While food and fuel remain meaningful drivers, food prices were a key source of the upside surprise. 
 

Producer price inflation again exceeded market expectations, with a 14,7% increase over the year. Global market volatility weighed on the local bond market and the currency, with the All Bond Index declining 3,7% over the quarter. Despite a quarterly depreciation of about11,4% against the US dollar, the rand proved more resilient year to date, depreciating by about 1,7%. Local equity markets lost ground over the quarter with the FTSE/JSE All Share down by 11,7%. Outside of industrials, most sectors were down in June with notable weakness in the last month from resources, with a downdraft of 17,2%. The big news in June was corporate activity from Prosus and Naspers, which will see the companies sell part of their stake in Tencent to fund a buyback of company shares to narrow the discount to net asset value and unlock value for shareholders. This helped Naspers and Prosus gain 42,3% and 32,6% over the quarter respectively.
 

Want to know more? Here's what to do:  
 

• Contact your wealth manager or stockbroker.
• To find out more about our investment offering, click here.
• If you're interested in what we can offer you, we would love to hear from you. You can contact us on 0860 111 263, or complete an online contact form.