The Markets Jacques Magliolo
Two financial events took place over a period of a mere=20 five days this week which astounded — nay=20 flabbergasted — pessimistic, bearish me! While I may=20 be forgiven for incorrectly thinking the Budget would=20 be harsh, the scrapping of the financial rand was=20 totally unbelievable.
Pre-Budget forecasts for both the scrapping of the=20 finrand and the Budget show that these events took many=20 market experts by surprise, but in numerous instances=20 both actually fell short of forecasts.
While timing for the abolishment of the finrand was a=20 difficult, near impossible, factor to forecast, market=20 reaction to such an event should have been a relatively=20 easy issue to predict. At the end of the day, investors=20 want to know, firstly, whether an event will be=20 positive or negative, and, secondly, whether this event=20 will have a minimal or substantial influence on their=20
Speaking at Old Mutual Employee Benefits’ international=20 investment conference, Barry Rafe, CEO of AMP=20 Consulting and Superannuation Services in Australia,=20 concluded that, following the relaxation of exchange=20 controls, South Africa could expect strong and=20 unpredictable volatility in its currency as world’s=20 investors seek the true value of the rand.
The commercial rand was trading at R3,56 to the US=20 dollar on March 9 — the day prior to the finrand being=20 scrapped. After the abolishment of the finrand and=20 Wednesday’s Budget speech the combined financial- commercial rand was trading at R3,61. This cannot be=20 classified as strong and unpredictable volatility.
On the Budget, institutional predictions were somewhat=20
Syfrets economist Elmien de Kock had, before the=20 Budget, suggested: ”The abolition of the financial rand=20 last week indicates that a good news budget can be=20 expected on Wednesday.=20
”This means that there are unlikely to be any major=20 shocks. The Budget is likely to indicate that fiscal=20 discipline has been exercised…,” she said.=20
Although it may be predictable that unions would demand=20 more from the government, they do represent the masses=20 through workers and are therefore an important=20 component for government to consider prior to any=20 budget speech.
In a pre-Budget statement issued via Sapa, Cosatu said=20 that workers, for their part, would be looking to see=20 what the Budget meant in terms of delivery of the=20 Reconstruction and Development Programme and=20 improvement of their daily lives.
Said the statement: ”To truly qualify for the title of=20 the first RDP Budget, the 1995 Budget will have to=20 exhibit (among others) implementation of progressive=20 taxation measures, including reducing tax for low=20 income earners, limiting the impact of VAT and a more=20 effective taxation on companies and the rich.”
The Budget left VAT and company taxes untouched,=20 mentioned an investigation into STC, Market Securities=20 Tax and Capital Gains Tax and seem to concentrate on=20 improving foreign relations and investment.=20
One can only guess at how foreign investor sentiment=20 will improve if unions find the Budget unsatisfactory,=20 especially as it does not address — as stated by the=20 Cosatu report — ”problems such as high food prices,=20 and the rapid rise in imports.”=20