Johannesburg’s biggest stocks tell the tale of a miserable May

If you’re looking for evidence of South Africa’s faltering economy, the performance of shares in its biggest companies is a good place to start.

Johannesburg’s FTSE/JSE Top40 Index of the largest companies by market capitalisation had slumped 7.3% this month as of Tuesday’s close. That leaves the gauge on track for its worst May in 20 years.

South Africa’s economy probably contracted an annualised 2% in the first quarter, Bank of America analysts said this week. Investors are awaiting evidence that President Cyril Ramaphosa, who is still to name his cabinet after the African National Congress won the election three weeks ago, will be able to lead a revival of the continent’s most industrialised economy.

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“Skepticism around the time line required to affect structural change to the SA economy is weighing on investors,’’ says Warwick Bam, head of research at Avior Capital Markets. “Improvements in education and productivity remain barriers to sustainable long-term growth.’’

To make things worse, foreign investors reduced their holdings of some major South African companies Tuesday as MSCI reduced the country’s weighting in its emerging-market equity gauges. That prompted a record R13.3 billion ($893 million) in outflows.

In fairness, South African stocks are still having a slightly better month than their emerging market peers, which have suffered as the trade war between the US and China batters sentiment. MSCI Inc.’s benchmark index for developing country stocks had lost 8.4% in May before trading started Wednesday.