Was the Sona enough to calm fi­nan­cial mar­kets?

Pretoria News - - BUSINESS REPORT - Dr Chris Harmse is an econ­o­mist and chief in­vest­ment of­fi­cer.

THE LONG-AWAITED State of the Na­tion ad­dress (Sona) by Pres­i­dent Ramaphosa on Thurs­day seemed to be wel­comed by most for­eign in­vestors and in­vest­ment an­a­lysts.

The pres­i­dent was hon­est in his com­men­tary that the South African econ­omy in gen­eral and the sta­te­owned en­ter­prises, in par­tic­u­lar, are in dire straits.

Ac­cord­ing to most an­a­lysts, how­ever, the ad­dress only gave par­tial de­tail on spe­cific key ar­eas like the elec­tric­ity sec­tor.

Once again it seems that most of the plans and pol­icy changes are as­sessed by the rat­ing agen­cies as weak and short on specifics.

Rat­ing agency Fitch com­ments that: “He of­fered only par­tial de­tail on key pol­icy ar­eas, in­clud­ing sta­bil­is­ing the elec­tric­ity sec­tor and debt­stricken state power com­pany Eskom Hold­ings, im­prov­ing pub­lic fi­nances, ac­cel­er­at­ing eco­nomic growth and land re­form.”

The Sona was re­ceived with a sparkle of hope that the pres­i­dent is build­ing up con­fi­dence, although many are scep­ti­cal on the de­liv­ery and the cost for the fis­cus in light of the un­ac­cept­able high lev­els of debt.

It seems that in­vestors re­main ner­vous around the ever-grow­ing gov­ern­ment wage bill and ex­pen­di­ture cuts.

Pre­lim­i­nary cal­cu­la­tions point to­wards a R120 bil­lion cut nec­es­sary in ex­pen­di­tures to bring down the Bud­get deficit to lev­els ac­cept­able for rat­ing agen­cies and in­vestors. There­fore, up to the main Bud­get on Fe­bru­ary 26 in­vestors will stay on the side­line be­fore com­mit­ting new cap­i­tal.

In re­ac­tion to the Sona both the rand and share prices on the JSE tend to ig­nore it, but rather stayed fo­cused on the coron­avirus and eq­uity prices around the globe.

Although most bourses re­cov­ered last week in an­tic­i­pa­tion of a cure for the coron­avirus and lower growth in deaths and in­fec­tions, eq­ui­ties and bonds stayed volatile and ner­vous.

In re­ac­tion to bet­ter than ex­pected US re­tail sales that rose in Jan­uary for a fourth con­sec­u­tive months, the Dow Jones (29 551 points), Nas­daq (9 613 points) and S&P 500 (3 379 points) in­dices reached new record lev­els on Wed­nes­day.

Wall Street, how­ever, started to con­tract again on Thurs­day and Fri­day as re­newed fears for the sup­ply chain ef­fects of the virus emerged.

Do­mes­ti­cally, fi­nan­cial mar­ket per­for­mances im­proved last week. This de­spite the news that South Africa’s un­em­ploy­ment rate re­mains at the high 29.1 per­cent, re­tail sales dropped to -0.4 per­cent and man­u­fac­tur­ing pro­duc­tion had tum­bled by -5.9 per­cent in De­cem­ber.

The rand ex­change rate af­ter the ini­tial de­pre­ci­a­tion in re­ac­tion to the ef­fect of the coron­avirus the pre­vi­ous week (Fe­bru­ary 7) started to re­cover strongly last week.

The rand/dol­lar ap­pre­ci­ated from R15.09/$ to R14.88/$, to the pound from R19.47 to R19.36 and against the Euro from R16.52 to R16.13 on Fri­day.

On the JSE share prices last week re­cov­ered for the sec­ond con­sec­u­tive week. The Alsi had in­creased from 57 276 points the pre­vi­ous Fri­day to 57 861 points (1 per­cent) last Fri­day at the close.

The In­dus­trial 25 in­dex gained 0.98 per­cent for the week, the Fi­nan­cial 15 in­dex had im­proved by 0.8 per­cent, while the Prop­erty in­dex once again lost more than 3 per­cent.

On the cap­i­tal mar­ket the R183 RSA bond on Fri­day traded on 7.96 per­cent, down from 8.02 per­cent the pre­vi­ous week.

CHRIS HARMSE

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