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Ok. Got itBRICS agreed to expand its membership during the most recent summit as inflation decreased contrary to popular opinion. However, short-term bonds outperformed long-term bonds and the rand weakened against the dollar.
Beyond BRICS
The BRICS summit concluded with the expansion of membership to 6 more countries. Outside of agreements that would see specific sectors benefit from improved access or trading terms, South Africa also received a R500m grant and R167m worth of power equipment from China to help with the current energy crises. Also noteworthy is a loan agreement with the New Development Bank (NDB) to fund a further phase of the Lesotho Highlands Water Project. Operation Vulindlela released a progress report for the second quarter including milestones for reforms in key areas such as telecommunications, visa systems, logistics, water and energy.
Locally listed mining companies reported meaningful declines in profits on the back of lower commodity prices, higher costs and local logistics challenges. While base effects played a role, weak economic conditions in China and ongoing rail limitations may limit any near-term recovery. This has readthrough for revenue collections, with incoming fiscal data already compounding concerns that the fiscal picture is deteriorating beyond expectations. While monthly trade data have been volatile, the country will more than likely return to a period of twin deficits, namely a fiscal and current account deficit.
Headline inflation for the year to July 2023 declined to 4,7% from 5,4% the previous month, lower than market expectations. Core inflation printed at 4,7%, while food inflation trended lower to 10,0%. This brings headline inflation much closer to the 4,5% midpoint.
Producer inflation for August also surprised to the downside at 2,7% from 4,8% the previous month. Despite the downside surprises, comments from representatives of the South African Reserve Bank suggest a level of caution for the risks still facing the inflation outlook.
Domestic assets retreated over the month as risk-off sentiment took hold. The FTSE/JSE All-bond Index declined by 0,2% in August. Shorter-dated bonds outperformed the long end, which priced for more meaningful fiscal risk. The rand depreciated by 5,7% against the US dollar in August, all but reversing the previous month's gains and bringing the decline year to date to 10,7%.
After several months of gains, the FTSE/JSE All Share lost 4,8% with declines across resources (-9,6%), industrials (-5,1%) and financials (-1,8%). Weak Chinese economic data weighed on commodity prices over the month. Precious metals (-15,5%) in particular saw noteworthy declines across both gold and platinum counters. Retailers also lost ground, ending the month down 6,5%. Returns from index bellwethers, Naspers (-8,5%) and Prosus (-7,3%) mirrored losses from the Chinese technology company Tencent (-8,3%), despite the approval of share consolidation plans. Small-cap stocks (1,7%) outperformed their mid- and large-cap counterparts. The property sector managed to gain a marginal 0,9% in August, leaving the year-to-date returns at -1,3%.
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We connect you to so much more than great advice. We provide insights, technical expertise, global opportunities, and a wide range of solutions and services.