Investment Report, June 2011
Softer global activity data and the continued debt crisis in Europe weighed in on the local equity market during the month. The FTSE/JSE All Share Index closed the month 2% lower. Tighter monetary policy in China and the concerns over slower global growth had a marked impact on the share prices of commodity related companies. The resources sector lost 3%, while financial- and industrial shares declined by 2.4% and 1.4% respectively during the month. The industrial sector’s relative outperformance can partially be explained by the robustness in consumer spending. The International Monetary Fund even upgraded its forecast on South African economic growth for this year based on the resilience of the consumer sector.
Consumer price inflation for May surprised to the upside, although core inflation remained well contained. The year on year increase of 4.6% in the inflation basket was mostly driven by higher transport and food related prices. Demand led inflation seems to be absent. Credit extension to the private sector has been poor, especially to households. The higher than expected inflation reading and the spike in US government bond yields towards the end of the month pushed local bond yields higher and the All Bond Index only managed to eke out a gain of 0.2%. Listed property did well and closed 1.2% higher for the month.
The rand had a lacklustre month, but was supported by the news that Wal-Mart completed its acquisition of a 51% stake in the domestic company, Massmart. The rand appreciated by 0.6% to R6.76 against the dollar. Foreigners were relatively inactive in the local financialmarket, being only small buyer of domestic equities and small sellers of bonds.