The South African economy was resilient amid its many economic challenges, including loadshedding, Eskom’s financial loss and the allegations against President Ramaphosa.
Faced with intense load-shedding, floods, multiple strikes and transport challenges, the South African economy has shown remarkable resilience over the last year as activity normalised after each shock. Third-quarter GDP printed at 1,6%, exceeding market expectations with the help of robust results for the agriculture and finance sectors. Of course, the normalisation of activity after the pandemic is set to run its course and incoming activity data shows the foundations for economic growth remain at risk from continued load-shedding, which escalated to stage 6 again in December.
After some delays, Eskom released financial results, posting an annual loss of R12,3bn, albeit an improved figure from the prior year and a decrease in gross debt. The challenges of non-compliant municipalities, diesel and maintenance costs and sabotage were outlined by outgoing Eskom CEO, Andre de Ruyter, who resigned from his post earlier in the month. He will stay on in the role until March 2023 to enable continuity and allow the board to find a replacement. This comes at a time when COO, Jan Oberholzer, who has been with the entity for more than thirty years, is due to retire in April 2023. Energy regulator, Nersa, once again delayed a pronouncement on new electricity tariffs for Eskom until January 2023, which would apply for the next two financial years. Newly elected leadership, following the ANC National Conference in December, and indeed at embattled SOEs, have much to contend with going into the new year.
Domestic financial markets recovered some lost ground after the selloff spurred by the Phala Phala Report, with the rand appreciating by approximately 1,0% in December and 6,3% over the quarter against the US dollar. Headline inflation for the year to November 2022 moderated to 7,4% from the 7,6% recorded the prior month, while producer inflation also continued to trend lower. This helped the FTSE/JSE All Bond Index gain 0,6% in December, bringing the returns for 2022 to 4,2%. Delivering standout returns for another year due to rising interest rates and continued corporate action, the preference share market delivered 12,7% over the year.
Despite a negative print in December, local equity markets delivered positive returns over the quarter with the FTSE/JSE All Share gaining 16,0%. This brings the one-year return to 3,6% in local currency and -2,8% in USD terms due to currency depreciation of 6,3% over the same period, nonetheless, outperforming developed-market and many emerging-market counterparts. Domestically exposed small-cap counters delivered a credible 7,6% in 2022, outperforming large and mid-cap counterparts. Resources rallied 17,6% over the quarter and 7,6% over the year with notable gains from industrial metals and energy-related sectors, while financials (10,2%) and banks (17,7%) delivered a strong 12-month performance.
The property sector rallied alongside other risk assets in the fourth quarter (19,3%), but only managed a paltry 0,5% over the last year. Despite a strong final quarter for index bellwethers, Naspers (25,1%) and Prosus (24,2%), their fortunes have diverged over the year with Naspers gaining 14,6% versus a decline of 9,9% for Prosus.
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