JSE banking index at its lowest in years

The JSE’s R1.12-trillion banking index has lost 11.5% of its value since the end of March, putting it on track for its worst quarterly performance in two-and-a-half years.

Rand depreciation and a local bond sell-off due to tightening global monetary policy are the primary culprits, but the sector has also suffered because of disappointing local econ- omic fundamentals.

The sector, however, looks set to benefit from an expected improved economic climate in the second half of the year.

Judging from the pre-closing calls from some banks, year-to-date performance from their local franchises had remained somewhat constrained, said Momentum Securities banking analyst Brian Mugabe.

The same factors that were apparent in the 2017 financial year, such as low corporate credit demand given uncertainty around the economy, and now to a lesser extent political outlook, continued to weigh.

The rand has depreciated 14% against the US dollar since the beginning of March, while at the same time the JSE All Share Index fell 3.84%. Banks have also lost 7.89% since the beginning of the year, slightly ahead of the JSE’s 5.81% drop.

Banks, along with retailers, had moved as a result, with it also worth being noted they had risen significantly after the ANC elective conference, when so-called “SA-inc” stocks were in favour, IG SA analyst Shaun Murison said.

Trade-war rhetoric

Trade-war rhetoric and tightening monetary policy in the US and eurozone has lifted the dollar and seen bond yields spike since April, both factors that have weighed on global financial stocks in general.

SA businesses have also been on the receiving end of a series of disappointing economic data releases.

Although economic activity should pick up after the disappointing first quarter, there was nothing to suggest a spectacular rebound, said Cannon Asset Managers CE Adrian Saville.

The market would be cautious in reading too much into data from a single quarter and by far the biggest movers of financial shares recently had been US President Donald Trump, and political developments, such as in Turkey.

“It is fair to argue that the domestic economic environment will be the ultimate determinant of where equities go, and where the financial sector goes more specifically,” Saville said.

Focus will now shift to continuing trade rhetoric and monetary policy tightening, and its effect on the rand. Broad consensus is that a Reserve Bank interest rate cut is now off the table, and the next move from the bank will be upwards, probably in early 2019.

Friday marks the release of private sector credit extension numbers for May, with expectations being that it will fall short of the 6% year-on-year growth seen in March.

SA banks will be finalising their results for the first-half to end-June, although this represents financial year-end for FirstRand. The performance of SA’s banks has been mixed, with Barclays Africa falling 20.5%, while Capitec has gained 3.53%.

Capitec’s performance came after a dismal performance in January when it dropped 27%.

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