Johannesburg - An outflow of R10.2 billion in equities and bonds occurred last week as South Africa counts the costs of the recent fallout between Finance Minister Pravin Gordhan and the elite criminal investigation unit, the Hawks, according to Investec.
The sell-off, R4bn in bonds and R6.2bn in equities, was bigger than the R8bn of Nenegate in the period between December 10 and December 13 and the week thereafter, Investec chief economist Annabel Bishop said yesterday.
“The market negativity was reflected by the rand, which opened the week at R14.26 (to the US dollar), R15.96 (to the euro) and R18.71 (to the pound), weakening to R14.75 (to the dollar), R16.46 (to the euro) and R19.57 (to the pound). The government’s statement on Gordhan did not soothe the rand, but some mild strength occurred late on Friday on significantly lower than expected US jobs data,” Bishop said.
She said investor sentiment had been damaged by fears of the increased possibility of credit rating downgrades. If credit rating agencies believe that the degree of fiscal consolidation currently outlined in the budget for the next few years is at risk of not materialising, the country’s rating will probably drop, possibly to sub-investment grade.
“If the rule of law is not followed it could open a dangerous precedent. An arbitrary exercise of power would weaken South Africa’s institutional strength. However, the pursuit of an absence of corruption, constraints on government powers, justice, order and security, open government, regulatory enforcement and fundamental rights must not be sacrificed to politics,” Bishop said.
In a note yesterday, Old Mutual Multi-Managers' Dave Mohr and Izak Odendaal said fears that Gordhan would be arrested and removed from his post, as well as concerns over the direction of governance and economic policy in general, had resulted in a sell-off of the rand and interest rate sensitive assets.
“It also highlighted significant divisions within the cabinet, which does not bode well for implementing the reforms identified by ratings agencies as necessary to lift the economic growth rate and sustain our investment grade rating,” they said.
Meanwhile, Investec has predicted that gross domestic product (GDP) will expand modestly in the second quarter.
Statistician-general Pali Lehohla will today release the GDP estimates for the second quarter of this year.
Following the contraction in GDP in the first quarter, at minus 1.2 percent quarter on quarter seasonally adjusted annualised and minus 0.2 percent year on year, a modest recovery was expected in the second quarter, with South Africa therefore likely to avoid a technical recession, Investec economist Kamilla Kaplan said yesterday.
GDP is forecast to have increased by 2.4 percent quarter on quarter seasonally adjusted annualised and by 1.3 percent year on year.
The high frequency data releases for the second quarter had signalled a mild lift in the industrial sector and another small positive contribution from the retail sector, Kaplan said.
However, GDP growth was forecast to essentially stagnate in 2016 at 0.2 percent year on year, marking the fifth year of slowing growth momentum. On the global front, lingering weakness in global growth and subdued international trade flows would act as a restraint on export growth, she said.
Domestically, depressed consumer confidence, high unemployment and weak credit growth were expected to see household consumption expenditure under pressure, she said.
Statistics SA on Thursday plans to release mining and manufacturing production updates for July. Kaplan said Thursday’s figures were expected to show that the two sectors had maintained some of their positive momentum into the third quarter.
In the second quarter, mining and manufacturing production registered a moderate strengthening on the lift in commodity prices and improved export performance, Kaplan said.
“There is scope for mining production to have registered positive growth for the first time in ten months, of 1.4 percent year on year, while manufacturing production is forecast to have risen 3.5 percent year on year versus a prior 4.5 percent year on year,” she said.
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