Key events to keep an eye on

FOREIGN PARTICIPATION IN GOVERNMENT BONDS UP The economic and political dangers to watch out for next year.

February’s national budget is a “key pressure point”, Intellidex’s Peter Attard Montalto says. The absence of concrete plans to boost economic growth could trigger a change to negative in the outlook on SA’s credit ratings. A downgrade to junk by Moody’s Investors Service would trigger forced selling of bonds by investors tracking investment-grade indexes, including Citigroup’s World Government Bond Index. That’s “very likely,” according to David Hauner at Bank of America Merrill Lynch. Ratings companies may be waiting for the budget data before making another call. Troubled state-owned companies will continue to weigh on the country’s finances, with their combined debt of R1.6 trillion. Almost half that is guaranteed by government, Treasury said in October.

Eskom needs R20.1 billion to meet its obligations in 2019, SAA needs to repay R14.2 billion by March and the SABC has warned it won’t be able to pay staff unless it gets R3 billion from the government by February. George Herman at Citadel Investment Services predicts a “worst-case scenario” for the companies: the state will have to step in to bail them out. Lawmakers will report to parliament on March 31 on changes to the constitution to make it easier to expropriate land without compensation. While these steps form part of the ANC’s plan to accelerate wealth redistribution, commercial banks that hold farm debt could be hit.

Lobby groups are gearing up to fight the process in court and the possible protracted legal wrangling could lead to a period of prolonged uncertainty. The run-up to next year’s vote may see an increase in populist rhetoric and constrain the ANC’s room to maneuver. Polls show the ANC maintaining its majority, but the party needs 55% to 60% of the vote to put President Cyril Ramaphosa in a position to implement reforms aimed at reviving economic growth, said Old Mutual Investment Group economist Johann Els.. The current terms of two of the Reserve Bank’s most senior officials end next year. While both could be reappointed, the possibility of changes in leadership will add to uncertainty amid a drive by the ANC to make the central bank state-owned.

Deputy Governor Daniel Mminele’s second term ends in June and Governor Lesetja Kganyago’s first five years at the helm end in November. The governor and his three deputies are appointed by the president: Kganyago has said he’d be available to serve another term if asked. The increase in foreign participation in the domestic government bond market to 40% from 23% in 2011 is a key risk for SA, says Mark Bohlund of Bloomberg Economics. It makes the rand very vulnerable to negative domestic events and changes in sentiment to emerging markets. With interest payments to foreign bondholders accounting for most of the current-account deficit, SA is essentially borrowing more from abroad to service its higher debt load. – Bloomberg