Investment Report, May 2011
Local election fever might have stolen the limelight during the month (with the ANC losing support against the DA), but the financial market was a hive of activity in its shadow. While GDP growth figures indicated that economic growth accelerated from 4.5% during the final quarter of last year to 4.8% in the first quarter of this year, leading economic indicators are pointing to slower growth conditions ahead. The stronger growth during the quarter was driven by robust activity in the manufacturing sector, but in the latest reading, manufacturing growth had started to slow down. The sell-off in the commodity market at the start of the month and the slower global growth expectations caused resources shares to shed 2.9% during the month. The FTSE/JSE All Share Index ended only 0.8% lower for the month as it was buoyed by a flat performance fromfinancial shares and a 1% gain from industrials.
Consumer price inflation for April, at 4.2%, was much lower than what was expected. Inflation is forecasted to continue to accelerate with a temporary breach above the targeted 6% level expected next year. Although the Reserve Bank’s inflation outlook has deteriorated and their commentary has become more hawkish, they left interest rates unchanged at their last meeting. The market’s interest rate hike expectations have also moderated over the last three months, and this, together with lower international bond yields, pulled domestic bond yields lower and caused the All Bond Index to rally by 1.5%. The strong rand continues to have a disinflationary impact on consumer prices, but it depreciated by 3.7% during the month to close at R6.80 a dollar. During the month, the rand breached the R7 a dollar level, but it was supported by renewed foreign risk appetite and the news that the Massmart/Wal-Mart deal will go through. In the latest labour force survey, it was revealed that the unemployment rate edged up to 25%.