Despite geopolitical tension, the rand held strong in February and higher commodity prices had a positive effect on South African markets.
Striking a critical balance
The State of the Nation Address (SONA) reemphasised reform priorities, notably in network industries, with a focus on the role of the private sector, as well as an improvement to business operating conditions, to be furthered by a newly formed red tape task team. The president also announced the extension of the Social Relief of Distress grant of R350 for another 12 months. This was largely anticipated and formalised in the 2022 Budget Speech, presented later in the month by Finance Minister, Enoch Godongwana. The 2022 Budget struck a balance between social support and tax relief, while still addressing a sizeable debt burden. The fiscal metrics came in broadly in line with markets expectations, with an improved starting point and trajectory due to an estimated overrun of revenues of R182bn. The greatest uncertainty remains on the expenditure side, including the outcome of further public sector wage negotiations, SOE financial support and the shape of future social support measures. Nonetheless, the Budget was well received. The Constitutional Court ruled in favour of government regarding the non-payment of the 2020 public sector wage increases, removing uncertainty with regard to the additional expenditure. Energy regulator, NERSA, awarded Eskom tariff increases of 9,6% for 2022/23, much lower than the request of 20,5%. While this is good for consumers, it will be a consideration for Eskom’s finances. Despite a volatile backdrop for emerging markets, the rand held ground, modestly appreciating by 0,2% against the US dollar. The All Bond Index gained 0,5% in February, with improved sentiment from the 2022 Budget, no changes in auction levels and the Constitutional Court ruling, largely overshadowed by international geopolitics.
Local equity markets benefitted from rising commodity prices with the FTSE/JSE All Share Index gaining 2,9%. Bellwethers Naspers (-21,7%) and Prosus (-26,0%) lost significant ground as further Chinese regulations on food delivery services, broader pressure on global technology stocks and modest exposure to Russia weighed on the counters. This led to higher returns for the FTSE/JSE Capped SWIX 40 at 4,1%. The resources sector gained 16,1% with PGM counters benefitting from a surge in palladium prices. The property sector declined 3,3%, accounting for broader exposure to the Central and Eastern Europe region.
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