What's been moving JSE shares year to date?

While May has been a tough month for equities, year to date still sees most of our domestic market (JSE) trading within positive territory, with the Top40 index having added around 10% over the period. The following article looks to unwrap the major market moves year to date (31 December 2019 to 4 June 2019) highlighting the major catalysts and themes at play in our domestic market.

Top Performers

Gains on the Allshare index have been led by resource counters, particularly that of platinum producing companies.

Renewed gains in dollar denominated platinum combined with a weaker rand would have created a positive backdrop for local miners of the precious metal, with further gains coming from corporate activity within the sector as well as an improved set of results and outlooks for these counters.

Lonmin has been amongst the top gainers within the platinum space with the share price gaining substantially after shareholders approved the proposed acquisition of the company by Sibanye-Stillwater.

Within the industrial/base metal space, the price of iron ore (Nymex 62% FE / metric ton) has moved from around $65/mt to nearly $100/mt, following a series of supply disruptions from major producers. A fatal dam collapse at Vale’s operations in Brazil as well as cyclones off the coast of Australia affecting Rio Tinto and the BHP Group‘s operations have been among the catalysts for the move in iron ore.

Local producer, Kumba Iron Ore has in turn seen its share price gaining around 60% for the year thus far, aiding gains in parent company Anglo American Plc and sister company Exxaro Resources. A favourable exchange rate and rampant gains in the underlying commodity see Kumba’s headline earnings per share for the interim period having gained by more than 50%.

Worst performers

The healthcare, general retail and food producer sectors have all produced double-digit losses for the year to date.

Netcare has led the healthcare sector lower following an overhang of 200m shares which were sold off by the company’s CEO, Mr Richard Friedland. The company which divested from its failed UK operations last year, has seen group profit (before tax) falling by around 8% in the interim period.

Massmart (a Wallmart subsidiary) has weighed on the industrial and general retail sectors as the group saw operating profit more than halve in the company’s interim reporting period. The weak results have been followed by the resignation of group CEO Guy Hayward, who is replaced by Mitchell Slape.

Food producers Tiger Brands and Pioneer Food group (the two largest sector components) have come under pressure in the wake of soft corporate earnings amidst a difficult economic climate and inclement weather. A more cash strapped consumer is making it hard for food producers to pass on price inflation which is negatively impacting profit margins for these businesses. Tiger Brand earnings have had the added impact of last year’s Listeriosis outbreak continuing to weigh on company results.

Key market themes

Performance of locally listed shares will continue to be affected by catalysts both macro and local.

US trade wars (particularly with China) are likely to remain a key global market theme for the time being. The ongoing trade dispute between the US and China threatens the state of global growth in direct proportion to the length of time it takes to find resolve. South Africa exporters (such as resource counters) will be cognisant of the demand side aspect that the trade war narrative is likely to affect.

Statistics South Africa has reported that domestic economic growth contracted by 3.2% in the first quarter of 2019. SA Inc shares (companies which derive a high proportion of earnings in South Africa) will remain at the mercy of the local economic climate. South African banks, retailers and industrial shares whose earnings are linked to the domestic consumer will hope to see signs of an improving economy and hopefully the aversion of two consecutive quarters of economic contraction, which would be evidence of an economic recession.

The rand remains volatile in the near term with a trend bias which appears favoured towards weakening this year. The Reserve Bank has suggested that it will start to loosen lending rates earlier next year. This combined with renewed evidence of factionalism within the ANC (governing political party) and continued uncertainty around state-owned enterprises (with both the Eskom and SAA CEOs having recently resigned unexpectedly) are factors which investors and ratings agencies will keep a close eye on going forward. A weakening rand is considered favourable for local resource counters and rand hedge industrial stocks, while unfavourable for SA Inc., particularly local retail and financial counters. A strengthening rand on the other hand, is thought to have the inverse effect on locally listed shares i.e. favourable for local financial and retail counters, while unfavourable for exporters and rand hedge counters.