May 08

South African Market Review

South Africa’s All-share index closed the month down by 2.1%. The financial sector was the biggest laggard, with the FINI 15 closing softer by 6.4%, as local banks were unable to escape the ripple effects of the mini banking crisis in the US and Europe. Further weakness was seen in the property sector, with the index down by 3.7%, industrials were down by 1%, but the resources sector eked out a 0.7% gain for the month. Individual counters showing strength were the BHP Group up by over 4%, AB InBev up by 6%, Prosus by 4% and Naspers by 1.1%

Economic data continued to show the impact of higher inflation as we saw a marginal increase in headline inflation, with that number coming in at 7.0% in February vs a previous reading of 6.9%, and core inflation increasing to 5.2% for the same period. Both prints came in higher than expected and reflected the impact of food inflation spiking by 13.6%. Notably too, the annual medical aid tariff increases also had an inflationary impact. In addition, retail sales slowed down for the second month with GDP shrinking by 1.3%, which highlighted the poor momentum going into 2023. In addition, Standard & Poors also downgraded the outlook for South Africa’s sovereign’s credit rating to stable from positive, while raising concerns about the impact of the energy crisis.

As expected, the SARB MPC hiked rates again, but the quantum of 50-bps surprised the market, moving the repo rate to 7.75%, with three members voting in favour of a 50-bps hike, and two in favour of a 25-bps hike.

On the political front, we also saw the much-anticipated cabinet reshuffle which confirmed the appointment of Dr Kgosientso Ramokgopa as the new Minister of Electricity. The new two-year public sector wage deal was also concluded with an effective 7.5% increase, which surprised many, including treasury especially after the unions were lambasted for the violent nature of their strike and the seeming disregard for the lives of the patients they are supposed to be caring for. Treasury has indicated that there is no money budgeted for the increases and will not allow the reallocation of funds already earmarked to fund this. As a result, the public sector will have to be creative in finding the funds, including freezing of jobs, retrenchments etc. to create the extra funding.