Weekly Market Update | 2 September 2024

???? Local Market Indicators & News Highlights

?? Broad Money Supply and Producer Inflation Trends

In July, South Africa's broad money supply (M3) growth rebounded to 5.9%, the highest in four months, driven by robust increases in net claims on the government sector and foreign assets, while private sector credit weakened. Credit demand softened, with private sector credit growth hitting a five-month low of 3.5%, primarily due to declines in corporate credit. Despite these challenges, the outlook suggests that credit growth may bottom out in August and gradually improve toward the year's end, supported by lower inflation, potential interest rate cuts, and economic reforms.

Producer inflation moderated to 4.2% in July, down from 4.6% in June, with disinflation observed across most categories. Notably, food, beverages, and tobacco product inflation decelerated, with significant declines in fruit, vegetable, and fuel prices. However, concerns remain about the impact of drier weather on food prices and potential volatility in global oil prices due to geopolitical tensions. While producer inflation is expected to remain contained, risks associated with fuel prices and operational costs could still influence future trends.

?? Bidcorp Delivers Strong Financial Year with Bumper Dividends

Bidcorp, the global food services giant, announced a significant 16% increase in its total dividend for the financial year ending June 2024, declaring a final cash dividend of 565 cents per share. This follows an interim dividend of R5.25 per share paid in February, bringing the total annual dividend to over R10 per share.

The company reported double-digit growth across key metrics, including a 15.5% increase in headline earnings per share (Heps) to 2,405.5 cents, a 15.1% rise in revenue to R225.9 billion, and a nearly 16% jump in trading profit to R12.2 billion. Following these strong results, Bidcorp’s shares rose by more than 4% on the JSE.

CEO Bernard Berson praised the company's performance, noting that despite global economic challenges, Bidcorp achieved real organic volume growth of nearly 6%. The group's operations in Europe delivered record results, while Australasia and the UK also performed well despite tough conditions. Emerging markets showed mixed results, with strong performance in South Africa offset by weaker trading in Greater China.

??Santam Increases Interim Dividend Amid Strong Profit Growth

Santam, South Africa's largest short-term insurer, has raised its interim dividend by 8% to 535 cents per share after reporting a 35% increase in headline earnings per share for the first half of 2024. Headline earnings per share rose to 1,578 cents from 1,170 cents in the previous year, reflecting robust financial performance despite challenges in the claims environment.

The insurer paid R14.2 billion in gross claims, slightly down from R14.6 billion in the same period last year. The company's gross written premium growth remained steady at 7%, with a net underwriting margin of 6.5%, up from 3.8% in 2023. Santam attributed the increase in claims to severe weather events across South Africa, particularly in the Western and Eastern Cape and KwaZulu-Natal, which have experienced significant storms and flooding.

In response to the elevated frequency and severity of claims, Santam has implemented several underwriting actions, including improving risk selection, increasing premiums for specific risks, and addressing motor repair costs. These measures have started to positively impact the company’s financial performance, even as weather-related losses continue to pose challenges.

?? Implats Faces Profit Decline Amid Weaker PGM Prices

Impala Platinum (Implats) reported a challenging financial year ending June 2024, with significant declines in revenue and profitability due to weak platinum group metal (PGM) prices. Revenue fell nearly 19% to R86.40 billion, while the company swung from a R6.18 billion profit in 2023 to a R17.15 billion loss in 2024. Earnings per share also plummeted, with Implats recording a loss of 1,929 cents per share compared to earnings of 577 cents per share the previous year.

Despite these financial setbacks, Implats maintained strong operational performance, increasing tonnes milled by 17% and achieving a 21% rise in 6E production at managed operations. However, the company faced macroeconomic headwinds and persistently low PGM prices, which negatively impacted sales revenue and operating margins. The company also dealt with restructuring costs and impairments, which grew to R21.85 billion in 2024. As a result, Implats' net cash flow from operating activities dropped significantly, and no dividend was declared for the financial year.

?? Global Market Indicators & News Highlights

???? United States: Stocks Mixed in Light Pre-Holiday Trading

Major Indexes Mixed: The U.S. stock market saw mixed performance in a week marked by light trading ahead of the Labor Day holiday. The Nasdaq Composite lagged, pulled down by a nearly 10% drop in NVIDIA, while value stocks outperformed growth stocks.

Positive Economic Data: The Labor Department’s core PCE price index showed a modest 0.2% rise in July, with the year-over-year increase slightly below expectations at 2.6%. Personal incomes and spending also rose, reflecting consumer resilience despite a cooling labor market.

Housing Market Struggles: Pending home sales fell 5.5% in July, hitting their lowest level since 2001 due to affordability challenges and election-related uncertainties.

???? Europe: Inflation Nears ECB Target, Market Sentiment Improves

Stocks Rally: The STOXX Europe 600 Index rose 1.32% to a record high, driven by expectations of an ECB rate cut in September. Germany’s DAX and Italy’s FTSE MIB saw significant gains.

Inflation Eases: Eurozone headline inflation dropped to 2.2% in August, just above the ECB’s 2% target, while core inflation ticked down slightly to 2.8%. Despite this, some ECB officials remained cautious about cutting rates too soon

Mixed Economic Sentiment: The eurozone’s economic sentiment indicator improved, but Germany’s Ifo business climate index fell to its lowest since February, indicating growing pessimism among German companies.

???? United Kingdom: Housing Market Shows Resilience Amid Positive Economic Data

Stock Market Gains: The FTSE 100 Index gained 1.07% amid expectations of rate cuts following dovish comments from central bank officials. Real estate stocks led the gains.

Mortgage Approvals Rise: UK mortgage approvals reached their highest level since September 2022, with net lending on mortgages also exceeding expectations in July.

House Prices and Confidence Improve: The Nationwide Building Society reported a 2.4% annual increase in house prices in August, and consumer confidence remained strong, bolstered by improving sentiment around personal finances.

???? Japan: Stocks Recover as Inflation Rises

Modest Market Gains: The Nikkei 225 and TOPIX Indexes rose by 0.7% and 1.14% respectively, recovering much of the ground lost earlier in the month due to U.S. growth fears and yen volatility.

Inflation Surprises: Tokyo’s core CPI rose 2.4% year-on-year in August, exceeding expectations and reinforcing the Bank of Japan’s hawkish outlook, which could lead to further rate hikes.

Stable Bond Yields: The yield on the 10-year Japanese government bond remained stable at around 0.9%, while the yen strengthened against the U.S. dollar, affecting the earnings prospects of export-oriented firms.

???? China: Weak Earnings and Lowered Growth Forecasts

Stocks Decline: The Shanghai Composite Index fell 0.43%, and the CSI 300 lost 0.17% as disappointing corporate earnings dampened investor sentiment. In contrast, Hong Kong’s Hang Seng Index gained 2.15%.

Growth Forecasts Cut: Economists revised down their 2024 growth forecasts for China due to the ongoing property slump and weak domestic demand, raising concerns about the country missing its official growth target.

Monetary Policy Stays Steady: The People’s Bank of China injected RMB 300 billion into the banking system but kept lending rates unchanged, as economists speculated on further policy easing later in the year.