Market Commentary

Finance Minister Gordhan held his awaited 2017 Budget Review this week. In his address, Gordhan provided some colour about the current economic environment in South Africa and his expectations. For the first time since 2010, investment in fixed capital decreased by 3.9% during the first nine months of 2016. The bulk of the decline was felt in private business investment, while public corporations also invested less as they postponed capital expenditure plans. Gordhan expects investment growth to recover moderately from 1.5% in 2017 to 2.8% in 2019. However, according to the Finance Minister, the level of domestic savings remains insufficient to fund capital expenditures. The lack of domestic savings is consistent with a tenacious current account deficit. Headline inflation is forecasted to remain above 6% in 2017 and to decline to 5.7% in 2018, at the top end of the official target range. In its 2017 Budget Review, National Treasury projected a GDP growth of 1.3% in 2017, 2% in 2018 and 2.2% in 2019. This assumes favourable trends coming from better commodity prices and exchange rate which bodes well for capital flows, inflation and business and consumer confidence as said Gordhan. Moreover, drought conditions having abated in most parts of the country and improved electricity supply should also contribute to better growth. Treasury highlighted a combination of higher global uncertainty and the persistence of unresolved policy issues in areas such as mining, land and broadband as major risks to the outlook. In addition, a weakening of the world trading system and a deterioration in the domestic policy environment would likely translate into lower economic growth. The JSE ASI lost 1.18%.

The EGX30 is this week’s worst performer and declined by 3.53% following strong selling pressure after weeks of good performance. EGX heavyweight Commercial International Bank lost 4.39% this week. In other news, the Central Bank of Egypt will issue treasury bills worth EGP 11.5 billion to support the country's budget deficit. The treasury bills will be issued through two tranches, 91-day bills at EGP 6 billion and 273-day bills worth EGP 5.5 billion. The total budget deficit for the fiscal year 2016-2017 is forecasted at EGP 319.46 billion.

It was a good week for African markets as most indexes ended the week on a positive note! The USE ASI is this week’s best performer, climbing 4.45% while the worst performer is the BSE DCI which lost 1.92%.

In Zimbabwe, Econet shares plunged overnight as the company announced its intention to raise US$130 million through a rights issue at a significantly discounted price i.e. US$0,05 at a time the company's share price was trading at US$0,30. Econet plans to use the proceeds to extinguish a debt. Econet owes US$13,2 million to China Development Bank, US$75 million to Ericsson Credit AB, US$15 million to African Export and Import Bank (Afrexim) and around US$6 million to the Industrial Development Corporation (South Africa). In the meantime, there seem to be tensions between the company and the ZSE as the ZSE raised eight problems regarding the rights issue that needed clarification and that Econet has not addressed yet. In parallel, Zimbabwe introduced a 15% value added tax on several basic foodstuffs on 1st February 2017. The new tax may result in prices increasing by 15%. Formal retailers may lose consumers to informal ones to avoid paying higher prices. The ZSE Ind. decreased by 0.50%.