2022 South African Financial Market and Fixed Income Review

The local market trended weaker during December – down 2.4% – which constitutes a swift turnaround from the almost 13% gain made in November and delivering a decline of 0.9% for the year. The best performing index for the month was property, closing up 0.6%, yet down 7.3% for the year, while financials were weaker by 5.3% for the month, but still higher by 5% for the year. The resources sector ended the month lower by 3.6% and down for the year by 0.2%, while industrials closed the month down by 0.2% and the year weaker by 5.4%. Richemont rose by 1.4%, BHP Group was up 0.7%, while Naspers and Prosus were up 7% and 6.6% for the month of December.

On the local economic front, CPI for November came in at 7.4%, vs the October reading of 7.6%, and the expected consensus reading of 7.5% y/y, thereby showing signs of inflation slowing. Sectors contributing to the inflation number were food, transport, and leisure; being up 12.5%, 15.3% and 8% respectively. Core inflation remained at 5% y/y, but with a moderate increase of 0.1% on a m/m basis. In addition, retail sales slowed for the month of October, declining by 0.6%, and the seasonally adjusted number declining by 1.4%.

On the political front, towards the tail end of December, Cyril Ramaphosa was re-elected as the president of the ANC, winning a second term of five years, with Paul Mashathile emerging victorious as his number two. This was despite concerns that the Phala Phala report would impact his re-election bid, as well as a last-minute attempt by the former President JG Zuma to derail Ramaphosa’s re-election by filing a criminal court case against the president on the eve of the conference.

Fixed Income

December capped off a strong final quarter for domestic interest-bearing assets. The initial bond sell-off on the first day of the month was quickly reversed as political tensions eased and Cyril Ramaphosa retained his seat at the helm of the ANC. The JSE All Bond Index (ALBI) delivered 5.68% over the fourth quarter, while the SteFi Composite Index, a cash equivalent benchmark index, returned 1.57% over the quarter.

Global inflation rates have shown signs of peaking, which has led to less hawkish central bank comments and action. The US Federal Reserve reduced the speed of its rate increases in December, opting to raise the interest rate by 50 basis points (bps) after three consecutive 75 bps increases. The comments from several US central bankers have indicated that they do, however, see a terminal rate greater than 5% which may stay high for some time.

The South African money market curve was less volatile over December, due in part to the absence of a South African Reserve Bank (SARB) Monetary Policy Committee meeting during the month. The 3-month Jibar rate increased by 6 bps to 7.26% at the end of the month and the 12-month Jibar rate increased by 16 bps to end the year at 8.68%. Over 2022 these rates have increased by 3.38% and 3.25% respectively, reflecting the tightening of financial conditions by the SARB in an effort to contain inflation.

The release of the parliamentary inquiry into President Cyril Ramaphosa’s alleged actions relating to a robbery that took place on his game farm sent nominal bond markets into turmoil on the 1^st of December. Soon after, however, Parliament rejected a proposal to open impeachment proceedings whereupon panic subsided, seeing bond yields decline back to levels experienced at the start of the month. The short-dated R186 yield increased by 4 bps and the longer dated R2048 rose by 7 bps during December. Over the year, the shorter end (1- to 3-years to maturity) of the yield curve performed the best, delivering a return of 5.70%, whereas the long end (12+ years to maturity) returned 3.62%.

South African inflation for November surprised somewhat to the downside, falling by 0.2% to 7.4% YoY (consensus 7.5%). Inflation-linked bonds shrugged off the lower-than-expected inflation as the inflation-linked bond index returned 2.61% in December, bringing the 2022 return to 4.24%. The performance for the year was mostly focussed on the short end of the inflation linked curve (1- to 3-years to maturity) which returned 7.33% in 2022, whereas the long end (12+ years) returned only 0.95%.