Resources lead local gains as inflation eases and growth pressures persist

South African equities strengthened in August, led by a sharp rally in resource shares as gold and platinum prices advanced. Gains were concentrated, while industrial and financial shares lagged and a stronger rand weighed on companies with offshore earnings. Inflation eased, providing some support for a more patient monetary-policy stance, although underlying price pressures remained above the South African Reserve Bank’s target. The domestic economy remained under pressure, with unemployment rising and manufacturing activity weakening further. Bonds were broadly stable, listed property declined, and the rand strengthened as improved commodity prices supported South Africa’s terms of trade.

Key highlights:

• Resource shares drove local equity gains as stronger precious metals prices supported gold and platinum miners.
• Easing inflation supported a more patient policy backdrop, although core price pressures remained elevated.
• Domestic growth conditions stayed weak as unemployment rose and manufacturing activity softened further.

The JSE was the best-performing major equity market in August, with the All Share Index and the Capped All Share both gaining 4.7% and moving back into positive territory for the year at 2.8%. The Top 40 rose 5.7%, while the Mid Cap eased 0.2% and the Small Cap fell 2.2%. Gains were narrowly concentrated. Resources surged 24.5%, with precious metals and mining up 32.2%, as gold and platinum prices rallied. The rest of the market struggled, with industrials down 5.7% and financials down 1.2%. Companies with predominantly offshore earnings faced a headwind from the stronger rand. 

Precious metals miners drove the gains, with gold miners up about 38%, adding roughly five percentage points to the JSE’s return, and platinum miners up about 21.6%. Outside the miners, notable gains came from Shoprite, up 7.4% after guiding to headline earnings growth of 10%-15%, OUTsurance, up 6%, and ADvTECH, up 5%. The heaviest laggard was SPAR, down 20% following the resignation of its chair and deputy chair. British American Tobacco fell 11% and AB InBev fell 10%, while Naspers and Prosus declined 9% and 6% respectively as Tencent weakened. 

The ALBI returned 0.7% as bond yields were broadly steady, despite volatility in global bond markets during the month. Inflation-linked bonds, as measured by the CILI, gained 1.0%, while STeFI cash returned 0.6%. Listed property, as measured by the ALPI, was the weakest local asset class, falling 4.1% and giving back much of its earlier gains, leaving it 2.6% higher for the year to date. 

SA headline inflation eased to 4.3% in July from 5.0% in June, its first slowdown in five months, mainly as fuel inflation slowed sharply to 20.6% from 34.3% as petrol prices fell. Housing, utilities and transport remained the biggest contributors to inflation, while food inflation eased to 0.9%. Core inflation remained near 4.2%, still above the SARB’s 3% target. Producer price inflation slowed to 5.7% in July from 7.5% in June. The main driver was petroleum and chemical products, where inflation eased sharply from 22.0% to 15.7%, indicating that the earlier energy shock is unwinding through the production chain. 

The South African Reserve Bank (SARB) did not hold a policy meeting in August. The repo rate remained at 7%, following the committee’s surprise decision to leave rates unchanged in July, when two of six members had favoured an increase. July’s softer inflation print supports the case for patience, although core inflation near 4.2% remains well above the 3% target the Bank is steering towards. The next meeting is scheduled for 23 September, and the decision is likely to depend on whether the recent moderation in fuel and food prices proves durable. 

The real economy weakened even as inflation improved. The unemployment rate rose to 33.6% in the second quarter from 32.7% in the first, the highest since the second quarter of 2022. The number of unemployed people increased 4.2% to 8.5 million, while employment edged down 0.1%. The Absa Purchasing Managers’ Index fell for a fourth consecutive month to 45.8 in August from 46.8 in July, its lowest reading this year and firmly below the neutral 50 mark. The business activity index dropped 8.6 points to 40.2, indicating a weak start to the second half of the year. 

The rand strengthened 2.5% against the US dollar over the month to close at R16.13 per US dollar, supported by the rally in gold and platinum prices, which lifted the terms of trade. It also gained 2.1% against the pound to R21.82 and 1.8% against the euro to R18.71. While the stronger currency helps contain imported inflation, it weighed on JSE-listed companies with predominantly offshore earnings. The rand has firmed by roughly 2.7% against the dollar for the year to date. 

South African Market Indices Performance 

About the South African Market Commentary 

The retrospective RisCura South African monthly 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.  

Subscribe to the South African market commentary by RisCura to understand the economic indicators and factors that affect the economy.