Higher commodity prices, volatility from geopolitical tensions, the long-awaited spectrum auction, load-shedding, and increasing interest rates affected South African markets in March.
The long-awaited spectrum auction took place in March, raising approximately R14,5bn. This surpassed Treasury’s estimate of R8bn and represents a healthy boost to the fiscus. A court case, brought by Telkom, which will be heard in April, still presents a risk to the outcome of the auction. South Africa recorded economic growth of 1,2% in the fourth quarter of 2021, staging a decent recovery after the damage caused by the riots in the third quarter. This brings 2021 GDP growth to 4,9% – a credible result, but one that still leaves the economy below pre-pandemic levels. While stage 4 load-shedding over the month reminded us of energy constraints and the risk it poses to the growth outlook, some positive news came from the easing of further Covid-19 restrictions as the country moves towards lifting the state of disaster and a temporary reduction of the fuel levy, which will help reduce the impact of rising fuel prices.
Although South Africa is vulnerable to higher oil prices as a net oil importer, high prices for commodities that the country exports, including coal, palladium and gold have supported the rand this year, helping it appreciate by approximately 8,7% against the US dollar. In line with expectations, the South African Reserve Bank increased interest rates by 25 bps. Three members voted in favour of a 25 bps hike and two in favour of a 50 bps hike, underscoring a more hawkish stance in the face of multiple risks to the inflation outlook. The All-bond Index gained 0,5% in March, with wild swings, as global central banks turned more hawkish.
Local equity markets ended the month flat but managed to gain over the quarter, with the FTSE/JSE All-share Index up 3,8%. Financials was the standout sector for the month and the quarter, having gained 49,7% since the start of the year. Benefiting from high commodity prices, the resources sector gained 31,7% over the quarter, while domestically exposed mid- and small-cap counters outperformed their large-cap peers. In contrast, technology counters Naspers and Prosus lost further ground over the month as it emerged that Tencent faced a possible fine from Chinese authorities for inadequate compliance measures, while Tencent’s financial results did little to appease markets. This led to higher returns for the FTSE/JSE Capped SWIX 40 over the year at 8,6%. Despite the volatility, it has been a great quarter to be invested in South Africa’s opportunity set.
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