MARKET WRAP: Rand continues to fall ahead of Moody’s rating review
Analysts say finance minister Tito Mboweni’s speech was short on detail on how the government plans to rescue the country
SA is holding its breath ahead of the release of the latest review by Moody’s Investors Service on Friday evening on the country’s sovereign credit rating.
Moody’s is the only major ratings agency that still has the country on investment grade, while S&P Global and Fitch have it in sub-investment, or junk status, and have done since 2017.
The rand continued weakening on Thursday after suffering its biggest one-day fall in more than a year on Wednesday following finance minister Tito Mboweni’s medium-term budget policy statement (MTBPS).
Mboweni outlined the dire economic and fiscal situation the country finds itself in, with the Treasury now expecting economic growth of just 0.5% in 2019.
Apart from warning that the country may fall into a “debt trap”, analysts say Mboweni’s speech was short on detail on how the government plans to rescue the country from the abyss of huge debt levels, rampant government spending and poor economic growth prospects.
“The challenges arising from the global macroeconomic backdrop have further been compounded by multiple domestic factors. These pertain to the security of electricity supply in the country, persistent policy uncertainty and the slow implementation of crucial reforms, which continue to weigh on business and consumer confidence, impeding satisfactory growth,” Investec economist Lara Hodes said.
Hodes said that “increased support to struggling state-owned enterprises (SOEs), coupled with weak levels of economic growth have seen government debt to GDP ratios surge”. According to medium-term budget numbers, SA’s debt to GDP is set to rise to 71.3% by 2022/2023.
By 6.46pm on Thursday the rand had fallen 0.64% to R15.1125/$, 0.62% to R16.8488/€ and 0.95% to R19.5497/£. The euro was little changed at $1.1148.
The rand lost 2.35% to the dollar on Wednesday, its biggest one-day fall in more than a year. When Mboweni began talking, it was at about R14.60/$.
Against the pound, the rand is now hovering around levels last seen in October 2018.
The generic 10-year government bond yield has risen to 9.21%, a level last seen in early June. Prior to Mboweni’s speech, it was returning 8.9%. Bond yields move inversely to their prices.
Unlike the rand, the JSE capped two days of gains on Thursday, with miners and Naspers leading the way. Miners usually gain in a weak rand environment as the commodities they produce are sold in dollars.
The all share added 0.99% on Thursday and top 40 1.09%. Gold miners led the gains, up 5.98%, with platinums rising 1.38%, industrials 1.31% and resources 1.18%. The only major index in negative territory was banks, down 0.54%.
BHP added 0.91% to R320.71 and Anglo American 0.52% to R386.60.
Afrimat lost 1.3% to R31.93. This despite it saying earlier revenue lifted 19.9% to R1.7bn in the interim period to end-August. It is one of the better-performing stocks on the JSE, with its share price up 14.04% since the beginning of 2019. In the same period the JSE all share index has risen 6.99%.
Montauk Energy closed 4.75% lower at R38.50 after it warned in a trading statement on Thursday headline earnings per share are expected to have fallen by between 86.1% and 91.1% in the year to end-September.
Sibanye-Stillwater gained 4.11% to R29.15. The world’s biggest platinum producer once again flagged a return to paying dividends in 2020 as higher metal prices led to a more than trebling of profit, allowing for the aggressive reduction in net debt in the September quarter. Its share price has risen more than 190% in 2019, following losses of about 36% and 37% in the prior two years.