President Cyril Ramaphosa has hailed the growing confidence among investors about the prospects for South Africa’s economy on the implementation of structural reforms, as the stocks and currency markets continued yesterday to new record highs.
The JSE All Share Index index rose more than 1% to above 83 600 index points, setting a new record high and marking its fifth consecutive day of gains, largely buoyed by retail-linked stocks, resources, financials, and telecommunications.
The growing optimism around interest rate cuts by the US Federal Reserve continued to support market sentiment yesterday, as investors awaited the release of Federal Open Market Committee (FOMC) minutes and the Jackson Hole symposium of central bankers where Fed chairman Jerome Powell is set to give a speech on Friday.
Meanwhile, the rand also remained at more than a one-year high, dipping below the R17.80 mark to the US dollar, its highest level since July, 2023 partly due to a softening dollar due to expectations of looming rate cuts.
The rand has remained volatile this quarter, reaching R18.95/$1 early this month as risk aversion spiked on worries around US economic growth, but supportive data has caused risk-off to retreat.
André Cilliers, currency strategist at TreasuryONE, said the dollar started the new week on a softer note as the FOMC minutes were expected to show a dovish Fed outlook, as well as Powell’s speech.
“Markets are pricing in a 25 basis points cut in September with an outside chance of a 50 basis points cut, while a further three cuts this year are now expected,” Cilliers said.
“The rand continues to lead emerging markets currencies, stronger with the local currency consolidating its break below the R18 level. The rand move is now getting into a short-term technical overbought position as we head to the 10th consecutive day of gains,” Cilliers said.
Investors will also be watching the local inflation data tomorrow as it is projected to have fallen to 4.7% year on year in July following petrol price cuts in the past two months.
If consumer inflation has dipped below 5%, it will give the markets some clues as to whether the SA Reserve Bank will cut rates at next month’s Monetary Policy Committee meeting.
Ramaphosa said business confidence was so important to the government’s efforts to create jobs because it signalled an improved business environment, and encouraged new investment.
“The progress we have made in electricity gives us confidence that we can overcome the problems on our freight rail lines and in our ports,” he said.
“As the government, we held a meeting with business leaders last week. Business expressed optimism about the recovery and growth of our economy. They committed themselves to a new era of partnership with the government. We agreed on key actions we must now take to build on the progress that has already been made,” the president said.
Anchor Capital CEO, Peter Armitage, concurred that confidence levels have changed dramatically over recent months and this was reflected in a stronger rand, lower bond yields and a surge in share prices.
“The government has made a lot of right moves and business is following on enthusiastically. The key is allowing the private market the economic freedom and framework to deploy capital – of both the human and financial kind,” he said.
“However, we are in something of a honeymoon phase and SA is being given the benefit of the doubt by the financial markets. The Government of National Unity now has to deliver on a sustained basis,” he said.
Old Mutual Wealth investment strategist, Izak Odendaal, said Ramaphosa was correct to highlight progress on economic reforms, though he was perhaps on less firm ground when he said criminal syndicates were being “dealt with”, as organised crime remained a problem.
Odendaal said the government, in partnership with business, was addressing the big-ticket items that have held back economic growth in recent years but the smaller, day-to-day problems of poor public service delivery, especially at municipal level, still needed to be addressed and will be much more difficult.
“Nonetheless, the economic growth outlook has certainly improved,” he said.
“Financial markets are certainly recognising that South Africa is on a better footing in terms of its economic outlook. The rand has outperformed other emerging markets, SA government bonds (and other interest rate sensitive assets) have rallied, and the JSE All-Share hit a new high last week. The global backdrop also matters, since the US central bank is likely to start cutting rates next month,” Odendaal said.
BUSINESS REPORT