JOHANNESBURG - South African share markets, bonds and the rand exchange rate suffered on the news of the poor state of the government’s finances as revealed by Finance Minister Tito Mboweni during his maiden Medium Term Budget Policy Statement (MTBPS) delivered last Wednesday.
Although the minister said that government expenditure will be reprioritised, to be able to inject R50billion into various programmes to strengthen service delivery and investment, the statement could not stave off negative foreign sentiment.
The fact that the minister announced that the economy is on the way to grow at a slower pace of 0.7percent (much lower than the 1.5percent envisaged in the February Budget), the Budget deficit is set to increase to 4percent of gross domestic product (GDP), and that government debt will increase to 59percent of GDP and remain there, worried foreign investors and the credit rating agencies. Both Fitch and Moody’s came out with statements saying they now view South Africa’s fiscal outlook as negative.
Moody’s, the only agency that still has South Africa’s sovereign debt on investment grading, one notch above junk, is expected to report on its rating soon. Together with the bad state of South Africa’s economy and government’s finances, negative global market sentiment also hammered South African financial markets.
The US/China trade war, the Saudi Arabia murder issue, Italy’s budget dilemma and a bleaker picture on Brexit had devastating effects on global share prices, including the JSE.
In the US, the Dow Jones industrial index lost more than 3 percent during last week, as poor US company earnings started to take their toll.
In Germany, the DAX is already down by more than 9 percent since the beginning October, while the Hang Seng in Hong Kong lost more than 10 percent during the past month.
On the JSE, the All Share Index also had tumbled. The index ended Friday on 50837 points. This is 1254 points, or 2.4 percent, lower than a week ago, 8.8 percent lower than the beginning of October and 8668 points, or 14.6 percent, lower than at the beginning of the year. Property shares (-27.7 percent), financial shares (-16.6 percent) and industrial shares (-22.6 percent) have decreased significantly over the year to date
The rand exchange rate continued to depreciate, especially after the MTBPS. After it tested the R14.16/$ level last week, the currency traded on Friday evening at R14.60/$, or more than 3 percent weaker. The rand, however, traded 10cents stronger against the pound at R18.69, and at R16.60 to the euro.
Chris Harmse is chief economist at Rebalance Fund Managers.
The views expressed here are not necessarily those of Independent Media.
BUSINESS REPORT