South African Assets Outperform in August

South African assets took the spotlight in August 2024, outperforming many emerging markets. Equities, bonds, and the rand all surged on the back of global optimism and local progress. Could this be the start of a long-term rally?

1. SA Equities Shine: The FTSE/JSE All Share Index performed strongly, thanks to gains in the Industrials and Financials sectors, despite a drop in the Resource sector.
2. Bonds on the Rise: Investor confidence surged, driving bond yields lower and attracting foreign investment for the second month in a row.
3. Rand Gains Strength: The rand strengthened against major currencies, supported by lower inflation and improving local economic conditions, sparking talk of potential rate cuts.
   
   

Equities: A Surge in Local Shares
The FTSE/JSE All Share Index stood out in August, primarily thanks to the Industrials and Financials sectors. Shares from "SA Inc," including retailers, banks, and insurers, sustained their upward trajectory, delivering robust returns. However, the Resource sector lagged significantly, experiencing a double-digit decline due to commodity price pressures. Despite this downturn, the overall index still exhibited commendable performance.

Bonds: Rising Investor Confidence Drives Yields Downward
Nominal bond yields in South Africa continued to decrease, resulting in higher bond prices. As investor confidence grew that the newly formed government unity will successfully implement its agenda, demand for South African bonds surged. Notably, foreign investors were net buyers for the second month in a row, contributing to positive momentum in the bond market as yields declined across all maturities.

Property: Strong Performance from Local Real Estate
South African property stocks enjoyed a fruitful month, with names like Growthpoint and Redefine leading the charge. The local property market remained on a strong path, buoyed by supportive macroeconomic conditions and an uptick in business sentiment.

Rand Gains Against Major Currencies
The rand showed strength against key developed market currencies throughout August, bolstered by favourable global sentiment and improving local economic indicators.

Lower Inflation Rates Signal Potential Rate Cuts
South Africa's inflation rate dropped for the second consecutive month to 4.6% year-on-year as of July 2024, marking three years' worth of declines. The core inflation rate, which strips out volatile elements, also decreased to a two-year low of 4.3% in July. These encouraging inflation figures set the stage for the South African Reserve Bank (SARB) to potentially initiate interest rate cuts in September, which could invigorate the economy and asset markets.

Rising Business Confidence
The business confidence index released by the South African Chamber of Commerce and Industry reached a four-month high of 109.1 in July 2024. This increase indicates a slight recovery in business sentiment following a dip before the May elections, aided by the establishment of the new government unity and an improvement in power supply, with over 150 days free of load-shedding.

Increasing Unemployment Concerns
Despite the positive developments, South Africa's unemployment rate ticked up to 33.5% at the end of Q2 2024, the highest level in two years, up from 32.9% in the previous quarter, exceeding expectations. The expanded unemployment measure, which includes those not actively seeking work, rose to 42.6%. Youth unemployment (for individuals aged 15 to 24) also increased to a concerning 60.8%, compared to 59.7% previously.

Future Outlook: Potential Economic Boost from Rate Cuts and Ongoing Government Support
Looking ahead to the rest of 2024, the prospect of interest rate cuts could significantly benefit both the South African economy and asset markets. The sustained backing from the newly formed government and improving macroeconomic fundamentals are likely to bolster the positive performance of South African assets. However, the rising unemployment rate and particularly high youth unemployment are pressing issues that need attention as the country moves forward.

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