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Local Overview

Consumer inflation in South Africa increased 4.6% year-on-year in July 2017, lower than the 5.1% in June which was the lowest rate since September 2015. Figures came in line with market expectations due to a slowdown in the costs of food and electricity and a fall in fuel prices. Prices rose at a slower pace for food and non-alcoholic beverages (6.8% from 6.9% in June); housing and utilities (4.5% from 5.7%), namely electricity and other fuels (2.1% from 7.4%); transport rose by 1% compared to 3.3% in the previous month due to a fall in fuel prices (-3.6% from +2%). Household contents and services rose to 2.3% from 2.24%, while recreation and culture declined to 3.2% from 3.3%. In contrast, inflation increased for miscellaneous goods and services (7.6% from 7.1%), while it was steady for alcoholic beverages and tobacco (3.3%), restaurants and hotels (4.1%), education (7%) and healthcare (7%). On a monthly basis, consumer prices increased by 0.3%, after a 0.2% rise in June. Prices of food and non-alcoholic beverages climbed 0.3%; housing and utilities rose 1.2%; miscellaneous goods and services increased by 0.5% and transport dropped 1.5%.


South Africa’s trade surplus increased to R 10.67 billion in June 2017 from a downwardly revised R 7.22 billion surplus in May, beating market expectation for a surplus of R 8.4 billion. Imports slumped 4.2% while exports declined at a slower 0.6%. Considering the first six months of the year, exports jumped 4.7% while imports went down 1.4%, shifting the country's trade balance into a surplus of R27.67 billion from a gap of R5.042 billion in the same period in 2016.

Exports fell to R102.14 billion from R 102.73 billion, due to lower shipments of mineral products (-16%); base metals (-6%); chemical products (-8%); wood pulp and paper (-16%); live animals (-14%); machinery and electronics (-2%) and plastic and rubber (-6%). In contrast, sales went up for precious metals and stones (11%), vegetables (33%) and vehicles and transport equipment (18%).

Imports declined to R91.46 billion from R 95.51 billion, mainly due to lower purchases of mineral products (-31%); machinery and electronics (-2%) and textiles (-11%). On the other hand, imports rose for vegetables (27%) and vehicles and transport equipment (21%).


Locally, the ALSI was up 7.03% in rand terms. US foreign investment in SA equities would have fared similarly with a return of 6.29% in USD, as the rand weakened (+0.85%) only slightly against the US dollar in July. Resources led the charge on the ALSI, surging 13.32% over the month. SA industrials followed suit adding 5.65% in July, with large rand-hedge stocks in the Top 40 and SA retailers (+5.94%) strongly rebounding after a dismal June month. Industrials were the lowest returning major sector, ending the month 1.91% higher. The financials index added 5.04%, with the big four banks all closing higher. Firstrand (+9.99%) and Standard Bank (+13.67%) drove most of the gains over the month. By market-cap, the Top 40 index led the gains adding 7.65% as the rand weakened against other major currencies. Mid-cap stocks added 4.69%, while small-cap stocks ended the month relatively flat returning 0.56%.

Basic materials was the best-performing sub-sector, after being heavily battered in the previous month, adding 13.32% over July. This was followed by consumer services, up 11.21%. Technology (-10.25%) was the worstperforming sub-sector, followed by healthcare (-2.10%). The gold mining sub-sector recovered by 9.73%, as the gold price rose 2.25% over the month. Gold Fields (+17.92%), Sibanye Gold (+11.69%), Harmony Gold (+8.12%) and Anglo Gold Ashanti (+3.98%) all led the gold mining index higher. Under the large diversified miners, Anglo American PLC (+23.49), and BHP Billiton (+20.01) rocketed higher as the price of iron ore (+13.47%), nickel (+10.29%) and copper (+7.44%) rose aggressively over the month. Other notable mining company performances include Kumba Iron Ore (+14.77%) and African Rainbow Minerals (+11.24%). Rand-hedge stocks in the Top 40, such as Naspers (+14.28%), Bidcorp (+5.72%), Compagnie Fin Richemont (+3.68%) and Mediclinic (+1.34%) contributed to performance, as the rand weakened marginally against the US dollar. Anglo American (+23.49%) and BHP Billiton (+20.03%) were the best-performing large-cap stocks. The financials index experienced a strong month driven mainly by gains in major banking stocks in the Top 40 index, namely, Standard Bank (+13.67%), Firstrand (+9.99%), Nedbank (+4.92%), Old Mutual (+4.31%) and Capitec (+3.68%), while Barclays Africa (+0.59%) had a weak month. SA equities were bought aggressively in July by foreigners, as they were net buyers of R10.7 billion worth of equities. Year-to-date, however, they are net sellers of R58.9 billion worth of SA equities.


Local fixed income markets saw positive returns over the month as the ALBI (+1.50%) outperformed cash (+0.62%), and also outperformed preference shares (-0.15%). The shorter (1 to -3 years) end of the yield curve was the worst-performing interest-bearing asset class, returning 1.23%, followed by 12+ years bonds (+1.47%). The 7 to -12-year section of the yield curve was the best performer, returning +1.76%. Year-to-date the 3 to 7-year period was the best performer (+7.44%) followed by the 7 to 12-year period (+6.96%), while the 3 to 7-year (+10.20%) was the best performer over the past 12 months. SA listed property (a hybrid asset class) had a positive performance over the month returning 3.70%.


Global Overview

Global equities and bonds climbed higher in July in US dollar terms than in the previous month. A steady flow of economic news lent optimism to investors, who shrugged off political uncertainty. In the US, themes of expansion in the manufacturing sector and a strong jobs market continued. The latest release of initial jobless claims confirmed that the labour market remains healthy. The US equity market remained within earshot of an all-time high, which was supported by corporate earnings and economic news. The US economy expanded by an annualised 2.6% in Q2 2017, following a 1.2% growth in the previous quarter and matching market expectations.

The unemployment rate in the US fell to 4.3% in July, from 4.4% in June. The trade balance deficit narrowed to $43.6 billion in June from a $46.3 billion gap in the previous month. During the month, Federal Reserve Chair Janet Yellen signalled that the central bank would not rush to increase interest rates and would do so only gradually. Telecoms and IT were the best-performing sectors, while the healthcare sector was the worst performing sector for the month. The price of healthcare-related stocks slipped when President Donald Trump’s healthcare reform bill ended in failure. In corporate news, US-based luxury lifestyle brand, Michael Kors, agreed to buy London-based Jimmy Choo for $1.2 billion and Amazon’s market value hit the half-a-trillion dollar mark for the first time on the 26th of July 2017, joining an elite group of company’s valued above $500 billion.

The broader Bloomberg commodities index added 2.16% for the month of July. The gold price recovered in July reaching a 14-month high amid geopolitical tension and increasing uncertainty over Donald Trump’s ability to execute policy reform. As a result, the Bloomberg gold index gained 2.00%. The price of platinum rose in tandem with gold as a weaker dollar boosted commodity prices across the board. The Bloomberg platinum index closed 1.64% higher. Brent crude delivered a solid performance, advancing 7.19% as the price of Brent crude broke above $50 per barrel once again. Furthermore, the Bloomberg precious metals index added 1.75%, while the Bloomberg wheat and natural gas index gave up 9.71% and 7.73% respectively.

On a total return basis, the global technology sector was the top-performing sector for the month of July returning 3.9% in USD, 2.3% in GBP and 4.6% in ZAR. This was followed by the communications services sector which returned 3.6% in USD, 2.1% in GBP and 4.3% in ZAR, after being the worst-performing sector in the previous month. Financial services remains the top-performing sector over a one-year period in USD (+34.6%), GBP (+35.5%) and ZAR (+28.1%). The worst-performing global sector in July was the healthcare sector returning 0.5% sector over a one-year period returning -2.6% in USD, -1.9% in GBP and -7.3% in ZAR.

In rand terms, global developed market equities (+3.11%) underperformed emerging market equities (+6.70%) once again in July. In USD, the MSCI World added 2.39% and the MSCI Emerging Markets Index advanced 5.96% for the month. Developed market property added 1.82% in USD, outperforming bonds, which added 1.68% in USD.

Developed markets indices in ZAR terms were positive across the board for the month of July, supported further by rand weakness against the US dollar (+0.85%), the Australian dollar (+5.03%), the pound sterling (+2.44%) and the euro (+4.37%).

The ASX 200 (+4.80% in ZAR, +4.07% in USD and +2.54% in GBP), the Canadian TSX (+4.44% in ZAR, +3.72% in USD and +2.19% in GBP), the Euro Stoxx 50 (+4.39% in ZAR, +3.67% in USD and +2.15% in GBP), the CAC 40 (+3.79% in ZAR, +3.07% in USD and +1.56% in GBP), the FTSE 100 (+3.08% in ZAR, +2.37% in USD and +0.86% in GBP), the DAX (+2.34% in ZAR, +1.64% in ZAR and +0.14% in GBP), the NASDAQ (+4.14% in ZAR, +3.42% in USD and +1.90% GBP) and the S&P 500 (+2.77% in ZAR, +2.06% in USD and +0.55% in GBP) all contributed positively for the month.

In emerging markets, China’s Shanghai Composite index advanced 3.24% in its base currency (+4.74% in ZAR, +4.02% in USD and +2.49% in GBP) and the Brazilian Bovespa equity index gained 4.80% in its base currency (+11.89% in ZAR, +11.12% in USD and +9.48% in GBP). The US dollar weakened against both the euro (+3.48%) and the British pound (+1.31%).

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