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Ok. Got itWhile local markets reacted positively to the National Budget, many of the gains were erased by the end of February. Read our latest market review.
The 2021 State of the Nation Address (SONA) sought to balance immediate challenges from the pandemic with the difficult task of reviving an economy that was already in dire straits going into the crisis. Rather than reiterate the long list of reforms required to change the economic trajectory, the speech focused on the four most critical economic reform priorities. While the focus was welcomed, execution remains the key demand from stakeholders. Naturally, and most pressing, more information on the vaccine procurement and rollouts was high on everyone’s priority list, with questions of how these would be funded.
The 2021 National Budget walked an equally tight rope of balancing the need to support while demonstrating fiscal prudence. A combination of higher commodity prices and a decent economic recovery over the latter half of 2020 left the Finance Minister with circa R100bn of additional revenues relative to the medium-term budget estimates. While the deficit and debt ratios are still well in excess of comfortable levels, the outcome of the National Budget was better than the market expected and allowed the funding of vaccines and extended Covid relief measures without additional direct taxes outside of the usual increases in the fuel levy and excise duties. The rand and local markets gained in the aftermath, although the headwinds from global bond yields erased much of this windfall by month-end, with the All Bond Index returning only 0,1% in February. Inflation-linked bonds benefitted from the prospects of reflation, returning 1,8% over the month.
Local risk assets continued in strength. The FTSE/JSE All Share Index gained 5,9%, benefitting from strong performance from the resources sector (11,7%). All subsectors delivered positive results (the platinum sector went up 19,2%) except for the gold miners, which declined by 16,3% over the month. The Small Cap Index returned 8,4% relative to headline numbers from the Mid Cap stocks (3,1%) and the Top 40 (6,0%). The property sector recovered by a healthy 8,6% in February, with strong performance from Capco (26,0%) and Redefine (24,3%).
On the last day of the month, President Ramaphosa announced the progression to alert level 1 and procurement of a further two million doses of the Johnson & Johnson (J&J) vaccine, bringing the total amount secured from J&J to 11 million doses. This came a day after the company received emergency-use authorisation for their vaccine from the FDA. This was a step forward in the country’s SONA goal to ‘defeat the Coronavirus pandemic’.