Stock investors say Ramaphosa’s speech was too light on details

Market participants will look for answers in the budget speech.

South African stock investors appeared little moved by the economic reform pledges in President Cyril Ramaphosa’s state of the nation address, keeping any enthusiasm for the plans in check as they await details and implementation.

The benchmark stock index in Africa’s most-industrialised economy edged 0.1% higher as of 2:38 pm in Johannesburg, in line with the broader picture in emerging markets. For many market participants, the next key event will be the country’s budget, due to be presented by Finance Minister Tito Mboweni on February 26.

“Domestic stocks are not showing any excitement,” Peter Takaendesa, head of equities at Mergence Investment Managers in Cape Town, said by phone. “And there were not enough details of how the budget will be funded and how quickly that will be done, so this has been received with scepticism from investors.”

While Ramaphosa promised progress in his speech on Thursday, he offered only partial detail on key policy areas, including stabilising the electricity sector and debt-stricken state power company Eskom, improving public finances, accelerating economic growth and land reform, Fitch Ratings said. The address scored well in terms of building confidence, but scepticism remains over potential delivery, according to Citigroup Inc.

“Many investors, especially offshore investors, have become weary of the South African government’s promises of reform and it seems they are more comfortable waiting on the sidelines to see if the promises made by government are enacted before making any long-term investment decisions,” said Michele Santangelo, a money manager at Independent Securities in Johannesburg.

Here are further comments from investors on major themes in Ramaphosa’s address:

Budget expectations

Santangelo:

• The budget is most likely to be an austerity budget. The measures presented in the budget will certainly not be enough to really tackle challenges like the public sector wage bill, government debt and state-owned enterprises.
• The government needs to aggressively reduce public-sector costs, not merely constrain their growth.
• Once the budget is presented, investors will continue to model the potential outcomes for the South African economy before committing any capital.

Henre Herselman, Anchor Private Clients:

• Expenditure and wage bill cuts are going to be key in this year’s budget speech.
• There will have to be some serious reduction in South Africa’s running costs, as an increasing fiscal deficit is a major concern for investors and ratings companies.
• How shortfalls in the budget will be funded remains a big question and concern to taxpayers.

Casparus Treurnicht, Gryphon Asset Management:

• The budget will be centered around austerity measures at best. Increased taxes and less wasteful spending.
• Things like the auctioning of mobile phone spectrum are good, but won’t move the needle. Draft land expropriation legislation will continue to deflect investment to other parts.

Takaendesa:

• It is clear there is no firm commitment as yet from some of the social partners on how the changes proposed and the reforms envisioned will be realized. Hopefully by Feb. 26 when the budget is read those agreements would be in place and we can hear more decisive things going forward.

Eskom and overhauling the energy sector

Takaendesa:

• We don’t have the luxury of time, since there is a shortage and we have to prioritise to increase supply.
• Eskom will feel the pain in the short term, but it makes perfect sense to diversify the country’s sources of energy.
• Eskom is the biggest challenge to growth in South Africa, and the opportunity cost of not taking these measures is much higher than the cost of retaining the status quo.

Treurnicht:

• Procuring power will help, but Eskom will sell less in a more-competitive environment.
• Eskom’s debt will remain a problem that will be difficult to reduce, and the government will need to bail it out again. The end effect is increased taxes and a constrained Treasury.
• Unlocking growth and fixing Eskom’s operations without political interference is the only way.

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