The clampdown has resulted in technology companies suffering with Tencent down in excess of 20% on the Hang Seng Index year-to-date. Naspers/Prosus has a large stake in Tencent and being one of our largest positions in the general equities, is also down 30% for the year following the clampdown. It does seem as though the noise is dying down, but global investors are still very jittery. Nonetheless, the Chinese economy has powered ahead with GDP projections still at 8% for 2021 even though inflation has begun to decrease. The government went on to inject $154bn into the economy to provide more liquidity. This will maintain good credit conditions for manufacturers such as those in the commodities sector, thereby maintaining the commodities boom for countries such as South Africa.
South African Themes
Economically, South Africa continued its recovery seen by car sales being up 20% year-on-year for June. The economy reported a GDP increase of 1.1% for the first quarter, translating to 4.6% versus expectations of 3.2% for the year. We saw the current account surplus sit at 5% of GDP, much higher than anticipated at 3% mainly driven by the resources sector due to the exporting of commodities, and business confidence rose to 97% versus the 94.7% for June. However, July confirmed that the recovery is not being felt by all as we saw unemployment numbers increase to decade year highs at 34% as Covid restrictions were being increased due to the third wave of the pandemic, spurred on by the Delta variant. All of these factors created the perfect conditions for unrest in the country and all it needed was a spark.
That political spark was provided when former President Jacob Zuma was arrested for contempt of court and sentenced to 15 months in jail. Jacob Zuma handed himself in peacefully. But that triggered riots in KwaZulu/Natal that spread to Gauteng. For a week, the looting and unrest carried on as the authorities tried to get a handle on the situation and eventually 2500 military personnel were deployed to calm the situation. The Rand weakened as a result of the riots and the JSE saw its first month of negative returns for 2021. The miners assisted in decreasing the downward movement just before the month closed out, managers saw an opportunity to buy more shares, especially in the property sector.