COMMENTARY: How markets are reacting to SA's political changes

09 March 2018 - 14:33 By Tsitsi Hatendi-Matika
South African rand notes in a file photo.
South African rand notes in a file photo.
Image: REUTERS/Siphiwe Sibeko

February 2018 will probably be documented as one of the most exhilarating months in South Africa’s history. Whether you are an individual stimulated by markets‚ or politics‚ or just enjoy dramatic flair for posting on social media feeds‚ there was something for you.

On the political front‚ the country swore in a new President‚ who then proceeded to give a State of the Nation Address‚ watched by many with more anticipation and hope than ever before‚ particularly in the last decade.

From there‚ the ball seemed to start rolling at a seemingly fast pace. Despite the preceding delicate macro-economic climate and fiscal picture painted during the Medium-term Budget last year‚ a decent enough full year National Budget was delivered.

To add to the action‚ the president reshuffled Cabinet‚ making some well-received changes‚ and also some unpopular compromises in the same breath.

Just how significant was the market response to all of the movements experienced over the month?

The currency was been a large beneficiary of the positive sentiment. The rand was trading at 12.45 against the US dollar at the beginning of the year and is now at 11.74‚ which is a 6% appreciation.

Over the month the currency was the best performing Emerging market currency‚ appreciating 1.49% against the USD. The nominal bond market delivered the best returns for the third month in a row‚ delivering 3.93% over February. The inflation bond market and money markets followed at 1.12% and 0.54% respectively.

The ALSI return‚ however‚ was 1.97% down as the equity markets took a beating over the month. Massmart Holdings Ltd was the best-performing equity entity‚ delivering 29.8% over the month. The positive performance was largely on the back of positive full-year results.

The property sector took the bulk of the bruising‚ with February as the second month in a row the sector reflected negative returns. The sector was down 9.90% for the month. The worst performing stock was Resilient REIT Ltd‚ which displayed -33.4% for the month on the back of the negative news‚ market reports and speculation around the counter and related entities.

It is worth mentioning that the global equity markets suffered over the month‚ making South Africa not unique in this respect.

A nice finale to the slew of good news was the positive gross domestic product (GDP) report‚ which came out this week. GDP for 2017 was 1.3%‚ which exceeds National Treasury forecasts which had been pinned at 1%.

The negative elements aside‚ it appears that all the changes have convinced most market participants that enough has been done to stave off the much-dreaded downgrade from Moody’s for the short- to medium-term‚ but we’ll have more clarity when its review comes out towards month-end.

Positivity from offshore investors was reflected in the purchases of equities to the tune of just under R17 billion. Bond market investors purchased around R13 billion over the month.

It seems fair to conclude that February was a one-hit wonder and that a culmination of such events will unlikely reoccur‚ but nonetheless‚ there is finally light at the end of the tunnel.

- Tsitsi Hatendi-Matika is Head: Retail Investment Specialist at Absa’s Wealth and Investment Management unit.