South Africa 40 Cash Index ticks lower despite strong GDP print

Local GDP much better than expected

Third quarter Gross Domestic Product (GDP) data, as reported by Statistics South Africa (Stats SA), was a significant beat on consensus estimates, with quarter-on-quarter (q/q) growth of 1.6% being realized (vs est. 0.4%).

Real GDP showed a whopping 4.1% increase year on year (y/y) for the three-month period and sees the nine-month tracking of unadjusted growth at 2.3% (against the prior year’s comparative nine-month period).

The figures suggest that the full year GDP print is likely to track ahead of the South African Reserve Bank’s (SARB) 1.8% forecast for 2022. South Africa’s economy is now confirmed to be ahead of where it was (in terms of size) before the pandemic.

8 industries grew while 2 industries contracted in Q3 2022

In terms of q/q growth the agriculture, fishing, and forestry industries produced the most meaningful gains increasing activity by 19.2%. This provided a 0.5% contribution to the overall GDP figure.

Finance business and real estate grew by 1.9%, but also provided a 0.5% contribution to the overall GDP figure.

Transport, storage and communication, mining and quarry, manufacturing, construction, trade catering and accommodation as well as general government services all saw low single digit q/q growth but added another 0.8% to the overall GDP total.

The personal services and utilities sectors (electricity, gas, and water) provided a negative contribution to the overall GDP figure of 0.2% for the quarter

Expenditure

Household (final consumption) expenditure (HFCE) contracted by 0.3% q/q.

Spending on food, alcohol, tobacco, clothing, furnishings, recreation and ‘other’ contracted over the period, while spending on housing, transport and restaurants increased.

Expenditure by government increased by 0,5% in the third quarter, mainly driven by increases in goods and services.

South Africa 40 Cash Index

The South Africa 40 Cash Index failed to confirm the positive close we were looking for in our previous guidance and has instead moved to test support at the 67440 level. The move lower comes despite an improvement in domestic economic growth and in line with softer global equity markets.

The moving averages on our chart continue to suggest keeping a long bias to trades on the index, although we are waiting for a bullish entry signal to confirm.

For long entry we are using the dotted red trend line on our chart as a filter, waiting for a breakout (confirmed with a close above) to manifest.

Should the 67440-support level be broken, we would not yet be considering a short position on the index, in lieu of the longer-term upward trend bias in place. Instead, we would be looking for a bullish price reversal closer towards the 65640-support level for long entry.