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What happened to markets in February?

February has seen resource shares leading gains in our local market as optimism grows that the trade dispute between China and the US is nearing resolve.


February has seen equity markets gaining across the globe as risk appetite improves amidst growing optimism around US China trade relations and the suggestion that the UK and EU are in favour of averting a “No Deal” Brexit scenario.

Trade War

On the eve of expiry, US President Donald Trump extended the the trade truce with China indefinitely (deadline previously set for 1 March 2019), where the US had threatened to increase tariffs on $200bn worth of Chinese imports from 10% to 25%. The indefinite extension suggests that the US are committed to finding resolve on the matter and feeds the assumption that a deal between the two largest economies in the world is nearing.

The trade war narrative is a threat to global economic growth and so the seemingly progressive nature of talks is being reflected positively in equity markets. It should be noted that while finality on the matter should continue short term gains in equity markets, another breakdown in talks would assume that downside risk potential (although seemingly less likely), exceeds the upside potential for a deal realised.


After much back and forth between UK and EU policymakers, Theresa May has continued to fall short of a trade deal in the month of February.

In latest developments the British Prime Minister has told policy makers that she would schedule more votes in parliament to achieve one of the following outcomes:

  • approve the deal struck between her and the EU
  • leave the EU without a deal
  • extend the March 29 deadline (for another three months)

In terms of UK’s policymakers voting towards one of these outcomes the schedule is as follows:

12 March – Vote on deal struck between Theresa May and the EU

If the vote is “Yes”, then the UK will leave the EU with a deal

If the vote is “No” (an expected outcome) then policy makers will move to the next vote

13 March – Vote on a “Deal” or “No Deal” Brexit

If the vote is for “No Deal”, the UK will leave the EU without a deal (uncertain and unfavourable scenario)

If the vote is for a “Deal”, then policy makers will move to the next vote

14 March – Vote whether to extend the 29 March Brexit deadline set forth in Article 50

If the vote is not in favour of extending the deadline, it would suggest that a No-Deal Brexit is likely (unfavourable scenario)

If the vote is in favour of extending the deadline then Prime Minister Theresa May will need to request this from the EU.



Rolling power outages for South Africans in February, offset optimism invoked by President Cyril Ramaphosa who announced the first part of a turnaround strategy for ailing power utility Eskom. Eskom will now be unbundled into 3 separate companies’ responsible for power generation, transmission and distribution respectively, in the interests of reducing costs and creating better operational transparency.

News of the Eskom unbundling preceded Finance Minister, Tito Mboweni’s maiden budget speech. In the budget, Tito Mboweni has allocated R69bn (R23bn each year for 3 years) for the company to service its debt obligations as well as costs relating to its reconfiguration into the new to be entities. The Finance Minister has been implicit in stating that the national fiscus is not taking on Eskom’s debt burden.

Eskom continues to be a drag on the fiscus and Moody’s Investor relations has been keeping a close watch on developments. The ratings agency is the last to maintain South Africa’s local credit at investment grade and is set to release its updated review on the 29th of March 2019.

The National Energy Regulator of South Africa (NERSA) is expected to release its verdict on Eskoms proposed 16% electricity tariff increases this month. Moody’s has been suggestive that a large tariff increase may be necessary for the power utility to manage as a going concern and an above inflationary increase is expected.

Macro Outlook

The national treasury has updated its basic macro outlook for South Africa to the following:

  • Real GDP growth estimated at 1.5% in 2019, 1.7% in 2020 and 2.1% in 2021
  • CPI Inflation estimated at 5.2% in 2019, 5.4% in 2020 and 5.4% in 2021
  • Current Account balance (%of GDP) estimated at -3.4% in 2019, -3.8% in 2020 and -4% in 2021

The Rand

February saw some significant weakness transpiring in the ZAR, as Eskom woes burden South Africa’s fiscus and in turn increase the probability of a ratings downgrade to come. The Eskom weight on the ZAR is noted by the currency’s underperformance against its emerging market currency peers.

The expectation is that South Africa will avert a downgrade by Moody’s in March, although there remains the possibility that the agency could move the credit rating outlook from stable to negative. In this scenario, markets will look to the company’s next review on South Africa in November, where a downgrade would then appear more likely.

Weakness in the ZAR has been most pronounced against what has been a strengthening British Pound. The pound has been strengthening into Brexit negotiations on the suggestion that a “No Deal” scenario will be averted (for at least another 3 months).


Month on month gains for Brent crude neared double digits in February, supported by further news of production cuts and declining US inventories held by commercial firms.

In addition to to the implementation of the Organisation of Petroleum Exporting Countries (OPEC) production cuts already in place, Saudi Arabia, the largest OPEC producer has said that it would further reduce its output in March by 500 000 barrels per day more than was previously agreed. Russia, a major Non-OPEC oil producer has supported the Saudi Initiative in saying that it too would reduce output further over the next two months.

While improving sentiment around US China trade would have aided gains in industrial metals on improved demand assumptions, iron ore found a further catalyst for gains from news that the worlds largest producer of the steel making ingredient, Vale would significantly be reducing output of the metal. The output reduction from Vale follows a burst dam and fatalities relating to operations in Brazil.


Resources – Platinum outperforms

Rising commodity prices on the back of improved trade sentiment combined with several positive earnings releases in the mining space to aid strong gains amongst locally listed resource counters in February.

Miners of Platinum Group Metals (PGMs) led the resource sector with Impala, Lonmin and Sibanye adding roughly 55%, 45% and 37% to their share prices respectively. Higher rand basket prices for PGMs has seen Lonmin reduce its comparative period loss per share, Impala moving from a loss per share to positive earnings per share and Anglo Platinum improving its profitability over the financial period. Sibanye-Stillwater is now looking to complete its acquisition of Lonmin Plc which will make it the largest PGM producer in the world, further diversifying away from its gold mining dependency.

Industrials – Retail underperforms

Retail counters have led the industrial sector lower following the softer rand and lacklustre corporate earnings in February.

Market darlings of yester year, such as Shoprite Holdings, Mr Price and Woolworths continued to disappoint investors with weaker than expected results highlighting challenging market conditions.

Shoprite saw hyperinflation in Angola, labour action, IT rollouts and a pressured South African consumer disrupting its headline earnings which fell more than 20% over the FY18 period. The Woolworths turnaround strategy in its Australian operations is proving tougher than expected adding to weak clothing and apparel sales in South Africa.

Operating conditions in South Africa remain challenging as consumers remain pressured, economic growth remains sluggish and unemployment stagnates at around 27%.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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