South Africa stocks flash oversold signal after R1.61trn rout

South Africa's trade surplus expanded to R20.5 billion in August, up from a revised R18.0 billion in July, according to data from the South African Revenue Service (SARS). This surpassed expectations set by Bloomberg. The improvement was primarily due to a more substantial decrease in imports compared to exports. Imports fell by R13.7 billion, or 7.8%, month-on-month, while exports dropped by R11.3 billion, or 5.8%. Consequently, the merchandise trade surplus widened.

SARS linked the decline in exports mainly to reduced shipments of platinum group metals, gold, and zinc ores and concentrates. Vegetable exports saw a 9.0% month-on-month decrease, while machinery and electronics shipments fell by 3.0%. Notably, platinum group metals constitute over 27% of South Africa's mining sector. Production of these metals dropped by 13.5% year-on-year in July, as reported by Statistics South Africa.

Imports experienced a decline, partly attributed to reduced purchases of petroleum oils excluding crude. The fall in imports was further influenced by decreases in original equipment components and automatic data-processing machines. These reductions more than compensated for increases in other categories, leading to a larger monthly decline in the import bill.

Investec cautioned that the relief on the import side might be temporary. The bank anticipates import values to increase in the near term due to higher energy prices impacting the trade account. Brent crude oil averaged above US$100 a barrel in September, reverting to levels observed in May, driven by heightened tensions in the Middle East. Elevated oil prices typically raise the cost of refined petroleum products and associated inputs, which constitute a significant portion of South Africa's import basket.

The August figures underscore the dual pressures affecting South Africa's external trade position. While weaker volumes in key mineral exports offset some of the decline, the sharp drop in imports played a crucial role. Investec highlighted that the trade balance outlook would depend on global demand for South African exports, commodity prices, and energy import costs.

Elevated oil prices and persistently soft production of platinum group metals will likely influence the trajectory of the trade balance in the final quarter, contingent on whether export revenues can continue to offset the rising costs of energy and other imports.