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Ok. Got itWeak demand and a low oil price combined with higher commodity prices helped South Africa record a trade surplus for the seventh month this year.
President Cyril Ramaphosa delivered the ratified Economic Reconstruction and Recovery Plan, extending the Covid-19 grant by another three months and signalling priorities for the Medium-term Budget Policy Statement (MTBPS) to be presented later in the month. The MTBPS outlined a five-year consolidation plan that sees debt stabilising at 95% relative to the 87% presented at the Special Adjustment Budget in June. The plan leans heavily on containment of expenditure and a moratorium on public sector wages. Although the near-term numbers were in line with guidance and expectations, the execution risk around public sector wage negotiations and further financial support for South African Airways (albeit fiscally neutral) detracted from the credibility of the proposals. Progress has already been made on initiatives in the energy sector, infrastructure investment and auction of spectrum, but urgent implementation of growth initiatives will be necessary for Minister Tito Mboweni’s drought-resistant Aloe Ferox to survive the country’s current drought.
The MTBPS received a lukewarm response from markets, while rating agencies highlighted execution risk, noting that 'negotiations with social partners will be difficult'. Arguably the fiscal risks are well understood and priced to a large extent. The All Bond Index returned +0,9% in October, bringing the year-to-date figures to +2,7%.
Weak demand and a low oil price combined with higher commodity prices helped South Africa record a trade surplus for the seventh month this year. This provides some support for the embattled South African rand and counterbalance to the continued selling from foreign investors across equities and bonds.
The property sector took another leg down, declining by -8,5% over the month and driving 12-month returns to ‑51,6%. Index bellwether Growthpoint traded down ‑13,4% as the market penalised the property counter for the risk of an equity raise given high debt metrics and meaningful exposure to the office market.
The FTSE/JSE All Share traded down -4,7% over the month in line with global markets. Domestic counters showed some resilience, with the small-cap index returning a modest +0,1% relative to negative headline numbers from the mid-cap and Top 40 indices. Resources lost ground over the month, losing -11,4% while a weakening oil price saw Sasol decline -35,1%. Ending the month on a positive note, Prosus announced plans to purchase up to $5bn of Prosus as well as Naspers shares as part of a share buyback programme. Sometimes the best opportunities are close to home.