Nicola Mawson
Following a tense few weeks last month as the Government of National Unity (GNU) seemed set to fall apart given that the ANC and DA could not agree on ministerial positions, the Cabinet announcement helped lift both the local currency and the stock market yesterday.
Particularly good news for the market was the return of Enoch Godongwana as finance minister, while President Cyril Ramaphosa allocated ministerial posts to business-friendly opposition parties, which provided certainty in terms of fiscal policy.
Stocks on the JSE started the week off on a solid footing with the all share index rising 1.1% to near record highs at 80 581 points, halting three consecutive sessions of decreases, before moderating at 79 995 points by 5pm.
The rand strengthened to its highest in a week and dipped to R17.96 to the US dollar when the JSE opened yesterday, but pared back gains to trade at R18.24 to the greenback at 5pm.
As Bianca Botes, director at Citadel Global, pointed out yesterday, the news brought an end to two weeks of uncertainty.
“The stronger rand speaks to the positive view that the market has on the formation of the Cabinet and the optimism that surrounds the future fiscal and economic outlook for South Africa,” said Botes.
Botes also noted that the JSE all share was up about 0.9% at around noon as investors are optimistic about the future of the country.
“There is a sense of optimism about the commitment by the government to a prudent fiscal approach.”
Investec chief economist Annabel Bishop said the rand was likely to keep some of the strength it gained following the news, with the bank expecting the currency to average around R18 to the dollar for the rest of this quarter.
Data supporting an interest rate cut in the US would push the currency to appreciate significantly beyond this point, she said.
A note from Trading Economics indicated that some of the rand strength was due to a falling dollar index.
Bishop said that the private bank did not expect the recent changes in government following the national election to alter the path of strengthening economic growth.
“Market sentiment has improved on the progress in government, but 2024 is still likely to be a weak year.”
Investec predicts economic growth of 1% year-on-year for 2024, slightly down from its previous 1.1% increase on 2023 because of revisions to historical data and a poor first quarter that influenced the figure.
“We continue to forecast growth approaching 3% year-on-year by 2029,” Bishop said.
Old Mutual chief economist Johann Els added that the more mixed Cabinet with a multitude of parties holding ministerial and deputy minister positions should also be perceived as positive.
“Despite all the arguments over the past week, we eventually got there. I think this should be positive in terms of the potential to reform policies and fast-track implementation of those policies,” Els said.
“So, it should be positive in terms of reduction in political risk and thus improve confidence.”
However, Els pointed out that the currency had already priced in a deal between the ANC and the DA in terms of the new administration.
“I think markets are still digesting the news of the actual members of the Cabinet. But again, it probably was assumed that the minister of finance would remain in his post, and that was a positive.”
Nolan Wapenaar, co-CIO Anchor Capital, added that it made sense that the rand will strengthen as the GNU has passed its first big test and remains intact.
“We think that global factors are likely to be rand supportive in the coming months, which adds a tailwind for the currency,” Wapenaar said.
“Domestically, it’s all going to be about how effective government is and how they can address the structural issues holding back our economy.”
BUSINESS REPORT