Given the long-awaited SONA address of President Ramaphosa on 10 February major economic events, data releases and policy speeches domestically and globally are expected to have a noticeable effect on South African shares, listed property, and bond rates over the next three to four weeks. In fact, these markets already started to discount these events since Monday 7 February 2022. The Rand already gained more than 30 cents against the dollar since Monday and is traded lower than R15.05/$ and bond rates are moving lower.
While the President will be speaking in Cape Town, the US will announce its inflation rate for January. The US inflation rate became pivotal for financial markets over the last two months, Not only did the increase in CPI caused US share prices to move lower since the beginning of the year, especially the NASDAQ index, but announcements by the Federal Reserve that it will start to raise its bank rate from March, caused uncertainty on markets. The US inflation recorded 7.0% in December, up from the very low 0.5% in January 2021, the highest since 1992. Expectations are that the inflation rate had increased even further to between 7.1% and 7.3% in January. This much higher rate will affect most equity and bond markets in Developed Markets (DM) negatively, as the next meeting of the Federal Reserve Open Market Commission (FOMC) may decide to increase interest rates much earlier. In this regard, markets will also await the release of the minutes of the FOMC next week.
President Ramaphosa is now with his back against the wall. The experience of the municipal elections must show to him that public opinion is turning against him. The next National Elections is 18 months away and new political role players and opponents are gaining support. He will have to address issues like the command council and opening of the economy, service delivery, his “economic plan” of investment in infrastructure, national social grants, and other burning issues. He will have to give a firm indication of what he is going to do with the findings of the Zondo commission and the issues around Eskom. Saying the right things will support foreign buying of shares and bonds and strengthening the Rand. Surely, he will already have the data of the expected more than R200 billion windfall of increased tax income that is expected to flow from the mining sector as the “super commodity price” cycle continues. The President therefore have an excellent opportunity to address the political burning issues.
The Minister of Finance therefore also will have much more maneuvering space than last year in delivering his first National Budget over two weeks. The expected higher economic growth rate for 2021 and even 2022, as well as the tax windfall will give him the opportunity not only to keep most taxes the same but to bring down the national debt to GDP to levels much lower than 80%. This is much lower than the predicted levels of around 82% forecasted during last year’s budget.
If the President actively address the State-Owned Enterprises dilemma of mismanagement and compliance and the Zondo commission findings while the Minister of Finance tackles the debt issue in the budget, South African shares, bonds and the Rand are expected to continue their bullish movement of the last few weeks and investors may experience exceptional returns.
BUSINESS REPORT