The 2004/5 Budget to be presented on February 18 could provide a positive surprise to the South African capital market, Efficient Group chief economist Dawie Roodt said on Monday.
“I believe the minister of finance will reduce the call on the domestic capital market, so as to keep long-term yields in single digits. In the medium-term Budget policy statement [MTBPS] the call on the domestic capital market was put at R31,4-billion, but I am expecting only a R26,4-billion call.
“This R5-billion difference is the positive surprise that I am looking for in the Budget,” Roodt said.
The MBTPS, presented in November 2003, forecast a R41,8-billion deficit for 2004/5 compared with a R32,4-billion deficit for 2004/5 forecast in the February 2003 Budget.
The MBTPS deficit was due to be funded by R31,4-billion in domestic bonds, R6-billion in domestic short-term funds, and R6,7-billion in foreign loans. The “extra” R2,3-billion would cover the R7-billion annual payment to the South African Reserve Bank to pay for accumulated losses on foreign exchange forward book.
Roodt forecast that the Treasury would “book” a R10-billion profit on the foreign exchange forward book operated by the South African Reserve Bank on behalf of the Treasury, which would help turn the extraordinary net payments of R2,3-billion into a surplus of R2,3-billion, while surplus cash at the end of the fiscal year would reduce the call on the domestic capital market by a further R1-billion.
“I am optimistic about the capital market reaction to the Budget, because I believe they have priced in a far higher call on the capital market than will be presented on Wednesday,” Roodt concluded.
The benchmark six-year R153 bond yield reached a record low yield of 8,66% on October 29 2003 on the back of a stronger rand, but then weakened to a recent peak of 9,51% on January 29 2004 as the rand weakened in January. In February, the rand strengthened again and the R153 reached 9,05% on February 13. — I-Net Bridge