The South African equity market experienced moderate negativity in October 2023, with the FTSE/JSE Capped SWIX decreasing by 2.93%.

However, this is a slight improvement from September’s decline. Despite the South African market’s recent downturn, there are undervalued sectors and shares when measured against their historical values and global counterparts. This has piqued the interest of some investors, presenting a potential investment opportunity.

The FTSE/JSE All Bond Index remained strong in October, thanks to local bonds becoming more appealing in terms of their high yields relative to other emerging markets. It improved by 0.25% to 1.74%. The STeFi Composite also improved slightly by 0.02% to 0.72%.

The FTSE/JSE All Property Index fell 3.33% in October. The resources sector had a decent month, but still suffered a cumulative loss of 15% throughout the year. As a result, the FTSE/JSE SWIX ended up in negative territory at -3%.

The rand has strengthened slightly recently, trading at R18.75 to the dollar on 31 October 2023, ahead of the upcoming Medium-Term Budget Policy Statement (MTBPS) scheduled for early November.

Key takeaway points:

• South African equity market experienced moderate negativity in October 2023.
• FTSE/JSE All Bond Index remained strong thanks to local bonds becoming more appealing.
• FTSE/JSE All Property Index fell 3.33%.
• Resources sector had a decent month but still suffered a cumulative loss of 15% throughout the year.
• Rand has strengthened slightly recently.

Undervalued sectors attract investor interest

Despite the overall market negativity, some investors are interested in undervalued sectors and shares in South Africa. This is because these assets are trading at a lower price than their historical values and global counterparts.

Gold sector experiences modest gains due to Middle East tensions

The gold sector experienced modest gains in October due to growing geopolitical tensions in the Middle East. Gold is often seen as a safe-haven asset during times of uncertainty, which is why its price tends to rise when tensions are high.

South Africans combat load shedding with increased alternative power sources and tax incentives

South Africans are demonstrating remarkable resilience and resourcefulness in their efforts to combat load shedding. There has been a notable increase in the installation of alternative power sources, such as embedded generation projects, which have been further encouraged by tax incentives announced earlier this year.

Severe consequences in certain sectors due to Transnet and Eskom challenges

The retail, industrial, and mining sectors of the South African economy have felt the severe consequences of the challenges experienced by Transnet and Eskom. Transnet’s inability to function properly has cost the economy roughly R1 billion per day. Eskom reported its biggest net loss, after tax, of R24 billion.

Current debt prices paint a gloomy picture for economic growth

The current debt prices of South Africa paint a gloomy picture for economic growth, primarily hampered by limited energy access. The projected budget deficit for 2023/24 was previously estimated at -4.0% of GDP but has now increased to -4.5%.

Important points from the Medium-Term Budget Policy Statement (MTBPS)

• National Treasury predicts a real GDP growth of 0.8% for 2023.
• Gross debt is expected to increase to R5.2 trillion in the next financial year.
• Spending has been revised down by R21 billion.
• An amount of R34 billion has been allocated to extend the COVID-19 Social Relief of Distress grant for another year.

Overall, the South African market is facing some challenges. However, there are also some opportunities for investors who are willing to do thorough research.

About the South African Market Commentary 

The retrospective RisCura South African monetary Market Commentary, offers investors insights across key segments including the local markets and economic trends to gain clarity on economic indicators, asset performance, and market dynamics. Geared for informed investors, our insight into emerging markets empowers strategic decision-making in the dynamic South African market.  

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