Financial markets mixed on mini budget

SOUTH African financial markets reacted in a mixed way to the medium term budget policy statement that was delivered by the Minister of Finance Malusi Gigaba last Wednesday.

The depressing news that the economy will:

only grow by 0.7 percent in 2017, against the 1.2 percent envisaged in the main budget;

have a shortfall of R50 billion in tax income;

is likely to record a budget

deficit of 4.3 percent in 2017, against the budgeted 3.1 percent;

see levels of government debt rise to more than 60 percent of gross domestic product by 2012; and:

have to bail out the South African Airways and the South African Post Office by another R16 billion, had a negative domestic and global market sentiment.

As a result, the rand tumbled against the dollar, down 50c over the week (3.7 percent) to close on Friday around R14.16 to the dollar.

Against the pound, the currency depreciated by 52c (1.9 percent) to R18.55 and against the euro it lost 40c, or 2.9 percent, to trade Friday evening at R16.41.

The effect of the budget also contributed towards a large selloff of government bonds. The R186 long term Government bond rate had increased by 3.5 percent from 8.8 percent the previous Friday to 9.13 percent at the close on Friday.

On the JSE, share prices were mixed week as they were not only affected by the budget speech, but also by good growth numbers from the UK (0.30 percent) and the US (3 percent) beating, expectations.

Driven by rand hedgers and commodity stock increases due to the weaker rand, the all share index increased by 1.3 percent last week and closed Friday on a new record high of 58 714.04 points. The index is now 5.6 percent higher for the month of October and almost 16 percent up since the beginning of the year.

Both industrials and resources had increased by 2.3 percent. The weaker rand had a worrying negative effect on financial shares (–1.8 percent), banking shares (–3.1 percent) and property shares (–2.1 percent).

This week, investors will anxious await the release of domestic employment data for the third quarter.