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Ok. Got itConsumer spending experienced a noticeable decline as the country faced various challenges. The rand also continued to decline as small stocks outperformed their larger equivalents.
It never rains, but it pours
2nd quarter GDP printed at 0,6%, beating market expectations. While an increase in activity on the production side was seen across industries, pressure on consumer spending was evident on the expenditure side. The current account deficit increased to 2,3%, all but reversing the improvement from the previous quarter and reaching levels last seen in 2019. Fiscal data to the end of August was marginally better than expected, but still paints a difficult picture for the upcoming Medium-Term Budget Policy Statement in early November.
South Africans faced a barrage of national and localised challenges over the month. Load-shedding worsened over the month, while an outbreak of bird flu across the country sparked concerns. In the Western Cape, extreme weather conditions led to flooding and significant damage to property and infrastructure. On a positive note, a unit at Kusile Power Station was brought back online ahead of schedule, which should help with energy availability. While the energy crisis remains front of mind, challenges in logistics and in particular embattled SOE Transnet are not far behind. With calls from various avenues for new leadership, Transnet CEO and CFO resigned in September.
Headline inflation for the year to August 2023 increased to 4,8% from 4,7% the previous month, exceeding market expectations. Core inflation printed at 4,8%, while food inflation trended lower to 8,2%. Producer inflation for August also surprised to the upside at 4,3% from a figure of 2,7% the prior month. The Bureau for Economic Research (BER) 2nd-quarter survey recorded a decline in inflation expectations from the previous quarter, although expectations over the medium term remain above the SARB’s 4,5% midpoint.
The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) kept the bank’s key lending rate on hold at 8,25%, with 3 members voting in favour of the pause and 2 for a 25 bps hike. The tone of the statement remained hawkish given a plethora of risks that could impact the progression of inflation.
Domestic assets retreated further in September as risk-off sentiment persisted. Local bond markets felt the pressure of higher global bond yields, with the FTSE/JSE All Bond Index losing 2,4% in September and 0,4% over the quarter. Despite persistent volatility, the rand depreciated by a marginal 0,5% against the US dollar in the 3rd quarter, bringing the decline year to date to 11,3%. Local equity markets ended the quarter in the red, with the FTSE/JSE All Share trading down 3,5% with declines across resources (-5,4%) and industrials (-6,8%) and gains for financials (2,0%). 3rd-quarter returns from index bellwethers Naspers (-11,0%) and Prosus (-11,7%) mirrored losses from Chinese technology company Tencent (-7,7%), while also pricing portfolio revaluations. Mid- and small-cap stocks outperformed their large cap counterparts over the quarter. The property sector (-4,1%) underperformed in other asset classes in September, brining returns over the quarter to -1,0%.
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