Finance Minister Pravin Gordhan’s budget was more bond-friendly than equity-friendly, Mark Appleton, the head of South African strategy at Ashburton Investments, says.

Appleton says the reduced fiscal- deficit targets presented by the minister did not differ markedly from those envisaged in the Medium-term Budget Policy Statement presented in October last year.

The deficit before borrowing is projected to reduce from 3.4percent in 2016/17 to 3.1percent in 2017/18, and to reduce further to 2.6 percent in 2019/20. As a result, credit ratings agencies are not likely to view the budget negatively, despite very real risks to economic growth, as there always are with tax hikes, he says.

“There is little doubt that the minister is doing what he can within a set of significant constraints. It is acknowledged that real economic gains are only likely to come from economic reforms, which the budget is not tasked to deal with,” he says.

The reduction in the deficit and a potentially less negative credit ratings outlook should be seen as positive for the bond market, but at the same time, government plans to increase the number of bonds in issue (mainly in the local market), partially to build cash to fund large redemptions in 2019/20. Ashburton regards the overall effect as neutral, he says.

Nazmeera Moola, the co-head of fixed income at Investec Asset Management, says the persistent increase in the issuance of bonds - forecast to increase by eight to 10percent a year over the next three years - is disappointing.

She says that, to date, issuance increases in recent years have been swallowed by foreign and local investors because of low interest rates globally, a stabilising China and sluggish local growth.

“However, at some stage the buyers could dry up. We would rather see further commitment to supporting growth and cutting expenditure than higher taxes and increased issuance,” she says.

Marie Antelme, an economist at Coronation Fund Managers, says the planned issue of bonds leans heavily on local funding, and could put pressure on local ratings in time, but, in Coronation’s view, the change is insufficient to be a concern yet, given the conservative economic and fiscal context. “We therefore think that ratings agencies will maintain their current ‘vigilant-but-unchanged’ position, in the absence of a political shock.”

From an equity-market perspective, the increase in dividends tax is negative, because investors will get less out of their investments after-tax, Appleton says.

However, the growth outlook for the economy is gradually improving, and this will ultimately filter through to an improved earnings outlook, he says.

For equities, leaving the corporate tax rate unchanged is a relief.


The market’s reaction to the budget is short term, and most of your investments are probably for a long time horizon in which 2017 will play a small part, Ronald King, the head of strategic research and support at PSG, says.

He says if you are 60 today, you could live to 94, and if you are married, one of you could live to 106, so you have a 40- to 45-year investment time horizon.

If you are entering the market now, however, you should bear in  mind that the JSE is currently at the same level it was 20 months ago. Nobody knows how long the market will stay flat, but the longest period during which it has been flat is four-and-a-half years, he says.

This means it is probably not a good time to go into passive investments. Instead, you should look for asset managers who are stockpickers and can find the shares that can still deliver good returns despite the overall flat market, he says.