While most major global markets ended in the red, mining sector stocks drove the FTSE/JSE All Share Index 2.4% higher in February. The Alsi is up 3.2% so far this year.
Diversified miners, oil, platinum group metal and financial counters were the outperformers on the JSE.
The Resi-10 soared 14.3% month on month (up 18.8% in the year to date) and the Fini-15 rose 3.6% MoM (+7.1% YTD) as the banks released better-than-expected trading updates, showing strong earnings momentum and likely more benign credit losses than anticipated (Nedbank +14.7% MoM, Standard Bank +8.9% MoM, FirstRand +7.2% MoM).
For a second month running, the Indi-25 and the SA Listed Property Index were the laggards – down 7.7% (-9.6% YTD) and 3.3% MoM (-6% YTD), respectively.
The rand ended February basically unchanged (up 0.1%) and so far this year is 3.7% firmer against the dollar.
After falling 1.8% in January, the gold price soared 6.2% (+4.4% YTD) in February as demand for safe havens took the gold price above $1 900/oz. The gold price closed the month at $1 908.99/oz.
Investors are balancing geopolitical risks and adjusting their expectations on how fast central banks will raise interest rates. Although the conflict between Russia and Ukraine has added to inflationary risks and growth concerns, therefore supporting gold, higher interest rates raise the opportunity cost of holding on to the non-yielding bullion.
Concerns about commodity supplies
Platinum and palladium prices gained 2.5% and 5.8% MoM (+8.1% and 30.9% YTD), respectively.
After jumping 11.6% MoM in January, the iron ore price fell 10.4% MoM, but is still 7.7% higher this year.
Last week, Newcastle Coal Futures broke another record high at $400 per ton and are now up more than 100% since the beginning of 2022.
Mounting sanctions on Russia have led to an international energy crunch and exacerbated concerns over the commodity’s supply. Germany is poised to create coal reserves for electricity power plant operators, while Italy announced it could reopen some closed coal plants. Asian customers have also been scrambling to find alternative supplies to replace Russian coal.
Investors have been bullish on coal since early 2022, amid supply disruptions in top exporting countries such as Indonesia and Australia.
Brent crude was up 10.7% MoM, ending the month above the $100/bbl level. Brent crude is 29.8% higher in the year to date.
On Wednesday, the US took aim at Russia’s oil refining sector, with new export curbs, and it targeted Belarus with extensive new export restrictions. The US has, however, stopped short of targeting Russia’s oil and gas exports amid concerns over energy prices.
The OPEC+ alliance, which includes Russia, stuck to a planned output increase of 400 000 barrels a day in April, despite the market turmoil brought on by the war. Moreover, US crude inventories continued to decline, with stocks at Oklahoma’s Cushing Crude Hub dropping to their lowest levels since 2018.
Anchor Capital’s Peter Little says that Sasol, which should have been a huge beneficiary of a higher oil price, offset that tailwind with the release of earnings which showed disappointing execution.
Top and bottom shares in February … and so far this year
Platinum miners (+25% MoM) followed PGM prices higher, initially on optimism around decreasing supply chain constraints driving increasing vehicle production, but later in the month on the back of fears that Russia (which produces about 44% of global palladium and 14% of platinum) might struggle to export PGMs because of the war in Ukraine.
Little says several trading updates during the month meaningfully impacted share prices:
- WBHO (-25% MoM) surprised the market by announcing that it will liquidate its Australian operations;
- Telkom (-17% MoM) reported slowing mobile subscriber growth; and
- Tiger Brands (-11% MoM) reported lower bread volumes and margin compression due to its inability to recover cost increases.
Naspers and Prosus continued to weigh heavily on the local bourse, declining by more than double the rate of their biggest investment, Tencent (-11% MoM in rand terms), says Little.
“The pair have now lost almost half of their value in the past year. The continued softness in Tencent can at least partially be ascribed to the ongoing interference of the Chinese government in the operating models of large Chinese tech companies, the latest blow coming from a guideline from the Chinese government for food delivery companies like Meituan (about 20% owned by Tencent) to cut the fees it charges restaurants,” he says.
Compiled using information supplied by Anchor Capital and Citadel Wealth Management