While developments relating to state-owned enterprises, energy reform and a global recovery supported local markets in June, the stricter lockdown was a setback.
The Constitutional Court found former president Jacob Zuma guilty of contempt of court and issued a sentence of 15 months’ imprisonment. While the rule of law features prominently in the words of the ruling, their consequences perhaps speak even louder.
Reforms took centre stage in June and appear to be gaining momentum. Government confirmed that Takatso, a consortium of private investors, will be the preferred equity partner for embattled air carrier South African Airways, acquiring a 51% equity stake on completion of the deal. President Cyril Ramaphosa announced restructuring at Transnet, which will see the entity unbundle the ports business to establish the new, independent Transnet National Ports Authority. Continuing the ongoing reforms in the energy space, the electricity self-generation limit will be increased to 100 MW from 1 MW. This exceeds the 50 MW the private sector had been campaigning for and vastly increases the potential for generation capacity and a move to sustainable energy availability for the country. Should the announcements pass through the formal channels, these actions will surely help rebuild the credibility of the state and the country.
In line with expectations, consumer and producer inflation accelerated again in May. With much of this already priced in by the markets and a more reserved tone from global central banks, inflation-linked bonds returned -1,5% over the month. The all-bond index gained 1,1% in June, bringing the returns over the quarter to 6,9%.
The first-quarter GDP was recorded at 1,1% (qoq, not annualised), supported by growth from the mining and finance sectors. The local equity market lost ground, with the FTSE/JSE all-share index ending the month down by 2,4%, led by a downturn in the resources sector (-6,5%). Over the quarter, domestically exposed small- and mid-cap counters demonstrated more resilience than large-cap counterparts did, while the property sector finished the quarter as the top performer.
With the Delta variant spreading rapidly in South Africa, the severity of the third wave prompted a move to Alert Level 4 restrictions for two weeks, which will be reassessed in early July. While the global recovery is providing cyclical tailwinds, stricter lockdowns are an unfortunate setback.
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