While local equity markets show signs of recovery, the economy continues to suffer because of load-shedding and the rand weakened marginally against the US dollar.
South Africa’s economy continues to suffer under the state of its network industries, with the impact of persistent load-shedding featuring strongly in weaker Purchasing Managers’ Index (PMI) activity surveys for September. After declaring force majeure several times over the past two years due to the 2021 riots, cyber-attacks, natural disaster, cable theft and operational challenges, state-owned entity Transnet had to do so again in October when faced with an open-ended strike by workers. Miners to blueberry farmers alike felt the impact of the protracted industrial action at Transnet on production and the ability to export. The economic cost will be revealed when fourth quarter data starts rolling in.
The Medium-term Budget Policy Statement (MTBPS) confirmed a gross tax revenue overrun of R83,5 billion relative to Budget 2022 estimates. Alongside higher nominal GDP, this delivered much-improved fiscal metrics with gross debt to GDP stabilising faster and at a lower figure of 71,4%. Additional expenditure was earmarked to support public entities, including Sanral, Transnet and Denel, as well as for expenditure on social support and basic services, security and infrastructure. Included in this was an extension of the Social Relief of Distress (SRD) grant for another fiscal year until March 2024. The MTBPS confirmed that government would take over a portion of Eskom’s debt (one- to two-thirds was quoted), but the lack of any other detail on this process was arguably the primary disappointment for many investors.
The improved starting point helped local markets gain in the aftermath, but recognition of persistent future expenditure pressures, unaddressed questions and the global bond rout moderated the longevity of the response. Headline inflation continued to decline in September, printing at 7,5% y-o-y, while producer price inflation declined but confirmed that underlying pricing pressures are still very much alive. The rand weakened marginally against the US dollar, depreciating by about 0,8%.
Local equity markets recovered in line with global trends, with the FTSE/JSE All Share advancing 4,9%. The month was categorised by high levels of volatility, notably from Naspers and Prosus, which lost 15,8% and 16,2% respectively given their core exposure to Chinese technology company Tencent. Financials, most notably banks, staged a credible comeback with the broader financial sector gaining 13,7% over the month. After a challenging quarter, the interest rate sensitive property sector recovered some lost ground, gaining 11,0%.
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