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Ok. Got itEconomic data and activity indicators in South Africa indicated an economic recovery in the third quarter, supported by improving consumer and business confidence
South Africa opened its borders as further Covid-19 restrictions were lifted, bringing relief to the hospitality and tourism industries. Reopening the economy has translated into improved activity and sentiment, be it from a low base. In lockstep, after hitting all-time lows in the second quarter, both business and consumer confidence are also slowly on the mend. High requency-data economic and activity indicators confirm South Africa’s economic recovery in the third quarter, not dissimilar to global peers. Q3 GDP data is due for release in early December. Base effects will flatter the numbers and the implementation of economic reforms will be critical for the journey ahead, especially as lockdown restrictions of major trading partners may prove a diminished tailwind in the last quarter of 2020.
The South African Reserve Bank kept interest rates on hold with a vote of 3:2. Credit ratings agencies Moody’s and Fitch downgraded South Africa’s credit rating further down the subinvestment grade scale, while also maintaining a negative outlook. S&P Global kept their rating and outlook the same. Despite this outcome, the All-bond index remained well supported and returned +3,3% in November. This brings the year-to-date figures to +6,1%, making it the best performing asset class over this period.
Local markets participated in the global risk on rally and benefitted from a weaker US dollar. The property sector took a turn, gaining +17,5% in November, although this still leaves the sector down -42,4% year to date. The FTSE/JSE All-share gained +10,5% over the month and +16,0% in USD terms, buoyed by rand strength.
Resources continued to show strength, gaining +11,4%. Chemicals delivered a strong performance of +35,6% as the oil price recovered, with noteworthy returns from Sasol, which gained +43,7% on the back of this trend. The outperforming industry group of the month was the unloved financials sector, which gained +18,0%, with banks leading the charge. Domestic counters were in vogue, with the small-cap index returning a healthy +15,6% relative to headline numbers from the mid-cap stocks (+10,1%) and Top 40 indices (+10,4%).
At the start of December South Africa and the rest of the world saw an increase in Covid-19 cases again. A number of areas in the Western and Eastern Cape are already flagged as hotspots and localised restrictions look likely. As a difficult year draws to a close, this last month may yet hold more
surprises. In the meantime, stay safe and healthy.