Downbeat Fitch view on Tito Mboweni’s budget knocks rand
Amazon and Google are likely to drag the JSE down
The rand weakened by about 0.6% as Asian traders reacted to a report Fitch Ratings issued on Thursday night giving a downbeat view of the medium-term budget that new finance minister Tito Mboweni presented on Wednesday.
Fitch said the budget Mboweni presented on Wednesday “does not contain significant offsetting fiscal measures” — ratings agency speak for an unwillingness to rein in rising government debt.
“This pushes the prospect of debt stabilisation further into the future,” Fitch said in its media release on Thursday night.
Fitch’s most recent sovereign ratings report on SA was in June, when it held its rating of government bonds at BB+ — its first tier of junk — with stable outlook. It cut SA’s rating to sub-investment grade in April 2017.
“The rating reflects persistent low-trend growth. The evolution of fiscal policy in response to the recession and political and social pressures will remain an important part of our sovereign-rating assessment,” Thursday night’s statement said.
A concern of Fitch is that next year’s elections, which will take place after February’s budget, make it unlikely the ruling party will take the required but unpopular belt tightening steps.
“The government may announce further consolidation measures after the elections, particularly if revenue continues to disappoint. However, efforts to address high inequality and demands for better social services, and a political desire to contain pressures for radical policy changes, will continue to weigh on fiscal performance,” Fitch said.
The rand was trading at R14.65/$, R16.66/€ and R18.79/£ at 6.55am.
The JSE looks set for another bad day on Friday, judging from Asian markets, which were dragged down by Amazon and Google holding company Alphabet after they released September quarter results that failed to meet investors’ high expectations.
After closing 7.1% higher at $1,782.17 on Nasdaq on Thursday, ahead of its September quarter results, Apple then fell as much as 8% during what Nasdaq terms after-hours trade.
The online retailer shocked investors by missing its September quarter sales target and forecasting lacklustre Christmas sales.
Alphabet fell 4% to $1,103.59 after its September quarter results also failed to meet high expectations.
The US tech slide saw Naspers’s main asset Tencent fall 3.05% to HK$260.80 in Hong Kong ahead of the JSE’s opening on Friday morning.