Analysts Like What They See in South Africa's Budget Plan

Updated on
  • The rand climbs the most among the world’s major currencies
  • Traders feel budget good enough to avoid Moody’s cut: RMB
Lighthouse Research's Pigat Sees Reason for Optimism in South Africa

The rand advanced, stocks climbed, South Africa’s credit default swaps fell and the last time the yield on the nation’s local-currency debt was this low was in 2015.

Traders and analysts clearly approve of the first budget under President Cyril Ramaphosa, who took office last week.

Read More: Ramaphosa Takes Tax Gamble as South Africa Targets Debt
Read More: South African Bonds Advance as Budget Seen Averting Junk Status

Here’s what they had to say:

  • Julian Rimmer, an emerging-markets trader at Investec in London:
    • “The bond market likes it, the currency market likes it, and therefore the equity market will like it eventually too”
    • “It was a potential banana skin that’s been avoided and this looks to me like exactly the kind of slightly more conservative, stable, playing-it-steady approach that the markets were hoping to see from Ramaphosa”
  • Gordon Kerr, a fixed-income analyst at Rand Merchant Bank in Johannesburg:
    • “The market feels that the budget will be good enough to stave off a downgrade by Moody’s”
  • Per Hammarlund, the chief emerging-markets strategist at SEB SE in Stockholm:
    • “This is Ramaphosa’s budget. I think the finance ministry has been pretty busy since the ouster of Zuma to rework the budget”
    • “The VAT hike has been received well by the market. Also the pledge to cut 85 billion rand over the coming three years is also boosting the rand today, but the market may be getting ahead of itself to celebrate this point as the proof will be in the pudding”
  • Cristian Maggio, the head of emerging-markets strategy at Toronto-Dominion Bank
    • “It’s been a positive market reaction as one would expect as both the budget deficit and the stock of debt as a percentage of GDP have been revised lower compared to the medium-term budget policy statement”
    • “That said, targets remain above the February 2017 budget statement. So for now, South Africa is walking a tightrope. I think Moody’s won’t downgrade, but the risk of the opposite is quite high”
  • Rob Pietropaolo, a trader at Unum Capital in Johannesburg:
    • “The banks would probably be the winners on what he announces on tax; banks should benefit as well since the rand is strengthening significantly, so that should automatically lift them”
  • Owen Nkomo, CEO of Inkunzi Wealth Group in Johannesburg:
    • “It looks like the government is applying itself here and I think they still have a lot of options in my view to do something about expenditure; probably considering reducing the number of ministries”
    • “We’re still hoping that more changes will be implemented. We’ve done a lot of talking; it’s time to actually implement"
  • Natalie Rivett, a senior emerging-markets analyst at Informa Global Markets in London:
    • Initial market reaction shows “the budget is hitting the right notes”
    • “We believe there should be scope for the rand to resume its upward climb, toward our target of 11.250/USD”
    • “The medium term-outlook for the ZAR is less supportive though, as the benign inflation outlook and likely ZAR rally off the back of no-action from Moody’s is likely to see the central bank reduce its policy rate, removing some of the support for the currency and driving some carry trade flows away from South Africa”
    • “There is also an argument that the ZAR’s rally of more than 10 percent vs the dollar since Ramaphosa’s ANC election victory is misaligned to what he can realistically achieve. Thus, we see the rand consolidating around the 11.50/USD handle into year-end”
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