Despite securing $750 million in funding from the World Bank, South African markets had challenges due to inflation and increasing interest rates.
South Africa secured $750 million in funding from the World Bank after a period of talks. The development policy loan has a 13-year repayment period with a three-year grace period. The money will support implementation of government’s Covid-19 response to promote economic recovery and extend social support and has already been included in the foreign funding figures in the Medium-term Budget Statement in November.
At 5,9%, the final inflation print for 2021 hovers uncomfortably close to the 6% upper limit of the South African Reserve Bank (SARB). This also makes for a difficult backdrop as energy regulator Nersa undertakes public consultation on Eskom’s proposal of electricity tariff increases of more than 20% for 2022/23. A decision is due in February. In line with expectations, SARB increased interest rates by 25 bps, in a split vote of 4:1. The Monetary Policy Committee emphasised a preference for a gradual interest rate hiking cycle, but that near-term inflation risks remain to the upside. Despite a volatile backdrop for emerging markets, the rand appreciated by about 3,8% against the US dollar, even as the dollar strengthened against its major trade partners over the month. The All-bond Index gained 0,8% in January, supported into month-end by credible tax revenue data for December, especially for corporates.
The preference share market continued to be supported by the prospect of a rising interest rate environment and potential for further corporate action, with the FTSE/JSE Preference Share Index returning 4,1% in January.
Local equity markets had a mixed start to the year with the FTSE/JSE All-share Index gaining 0,9% in contrast to the FTSE/JSE Capped Swix 40 at 3,4%. Resources started the year on a strong note, with the sector gaining 3,9%. Rallying oil and gas prices benefited domestic play Sasol (+33,2%), while financials were spurred higher by rising global bond yields. Domestically exposed small and mid-cap counters lagged their large-cap counterparts, finishing the month down 1,3% and 0,4% respectively. Despite corporate activity unlocking value in certain property counters, the broader sector declined by 2,9%.
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