The groundwork
GDP in the first quarter printed at 0,4%, largely in line with expectations, helping the country avoid a technical recession. The current account deficit narrowed to 1,0% of GDP, which is better than expected as the trade surplus improved over the quarter. Local economic survey data for the second quarter continues to suggest a deteriorating economic backdrop and weaker demand, despite the official data remaining more resilient than expected. Sentiment recorded in the period among the business community as well as consumers remains depressed. The National Health Insurance (NHI) bill was passed by the National Assembly, despite much uncertainty around funding, ongoing opposition and legal challenge. 

With some light reprieve from load-shedding over the month, the ongoing efforts to solve the energy crisis remain at the front of investors’ minds. Eskom announced that connection to the grid, which has caused a bottleneck for several projects, will start proceeding according to the 'first ready, first served' principle rather than the 'first come, first served' approach, which has seen capacity allocated but not used. Developers have highlighted the implied additional cost for the new grid access rules, without any guarantees of grid connection. The report released by Operation Vulindlela, which provides progress updates on key reforms, provided some encouragement. Notable trends include continued momentum in new registrations for private energy generation and progress on the regulation needed to fully reform the energy sector. While regulatory administration and process do not always garner interest or reach headlines, they are certainly necessary for laying the groundwork for future change. 
 

Headline inflation for the year to May 2023 declined to a 13-month low of 6,3% from 6,8% the previous month, with core inflation at 5,2%. While lower energy prices and base effects played a role, a moderation in food prices was encouraging. In line with expectations, producer inflation also continued to trend lower. 

Domestic assets recovered some lost ground following the rout in May. Pricing of local bonds recovered over the month, all but reversing the losses from the prior month. The FTSE/JSE All-bond Index gained 4,6% in June, still leaving returns over the quarter at -1,5%. The rand also appreciated by 4,5% against the US dollar in June, bringing the decline over the quarter to 5,9% and ytd to a meaningful 10,7%. 

The FTSE/JSE All Share gained 1,4%, with higher returns from the shareholder-weighted and capped indices. The recovery in June was led by financials (11,4%) and industrials (3,7%), while resources were under pressure (-8,2%). Banks and retailers recorded a noteworthy recovery, gaining 13,0% and 16,1% in June. Naspers and Prosus shareholders welcomed the prospect of a simplified shareholder structure, which helped the pair gain 14,2% and 6,2% respectively in June. Similar trends set the tone for the quarter. The property sector gained 0,9% in June, concluding a positive second quarter at a marginal 0,7%.