South Africa’s main stock index extended declines, falling the most in more than five months after finance minister Tito Mboweni’s budget update and as negative sentiment from rising coronavirus infections and tougher lockdowns engulfed global equity markets.
Johannesburg’s benchmark index sank as much as 3.2% to a four-month low, with just 11 out of 141 stocks managing gains as of 4:34 p.m. Major diversified miners Anglo American Plc, down 4.6%, and BHP Group Plc, down 2.6%, were the heaviest drags on the market, reflecting investor concerns about the outlook for the global economy.
“Equity markets and the rand had moved stronger over the past few weeks, but it looks like the realization that both the domestic and external environments remain quite challenging have resulted in most of those gains being given back today,” said Peter Takaendesa, head of equities at Mergence Investment Managers in Cape Town.
The rand dropped as much as 1.8% against the dollar, also the most since Sept. 21, as emerging-market currencies weakened.
“With a stronger dollar and negative sentiment around the South African budget, the rand was due to be on the backfoot,” said Matete Thulare, a Johannesburg-based analyst at Rand Merchant Bank.
The weaker rand dragged the index of bank stocks down 3.7%, the biggest intraday decline since Sept. 2.
- FirstRand Ltd. – 3.5%
- Standard Bank Group Ltd. – 3.6%
- Absa Group Ltd. – 5.1%
- Capitec Bank Holdings Ltd. – 2.3%
- Nedbank Group Ltd. – 5.8%
- Investec Plc – 3.4%
The mining index fell 3.5%, with Anglo and BHP joined by Sibanye Stillwater Ltd. (-6.9%), Impala Platinum Holdings Ltd. (-6.4%) and Anglo American Platinum Ltd. -6.6%
Here is how some investors reacted to the budget speech:
Sandy McGregor: Allan Gray
- The mid-term budget is essentially unchanged from the revised budget tabled in July.
- Key feature is limiting the growth of the public sector wage bill to 1.8% in 2020/21 and 0.8% in 2021/22.
- It is accepted that there is limited scope to increase taxes, with a relatively modest 5 billion rand of tax increases projected for 2021/22.
- The government remains committed to the fiscal strategy announced in July.
Takaendesa: Mergence Investment Managers
- The medium-term buget was always going to be a tough act given country-specific headwinds, as well as a tough external environment constraining the growth of the economy.
- Government spending cuts are a must given the tough economic environment and unsustainable public debt levels, but they carry very high execution risks given legacy social challenges and political landscape.
- Success with execution on some of the key government consumption expenditure cuts and recovery in the global economy will be key to watch for investors who are rightly concerned by the country entering a debt trap.
Casparus Treurnicht: Gryphon Asset Management
- It’s really hard to be optimistic about South Africa listening to the speech. There was nothing good in it really.
- People want to see action. And the speech was a non-event, only confirming that we are in deep trouble.