Viewpoint A market assessment of the MTBPS

Key points

• SA’s budget was well-received by financial market participants. Bond yields fell, the ZAR appreciated, and the stock market performed as well as one could have expected. On many fronts, it appears that the message from the private sector to the government is sinking in, and the prospects for further reforms are looking promising.
• Operation Vulindlela appears to be gaining traction, and while the evidence of this is not yet reflected in the country’s fixed investment numbers, indications are that this will change through 2026, when the liberalisation of network industries and the government’s privatisation efforts finally start to crowd in some private sector investment.
• Furthermore, the government has made strides in lowering the inflation target, which will help lower bond yields. It has maintained a primary budget surplus, is considering a fiscal anchor, and is implementing transparency reforms through the tendering process, closing off more loopholes and allowing for greater insight into how the government spends its funds.

BASELINE VIEW:

The implication of all this is that the ZAR is well-positioned to sustain its recent gains. As the broader risk premium subsides, so the inclination to expose portfolios to emerging markets like SA rises. SA enjoys the added benefit of being exposed to a commodity upswing, and so the combination means that the ZAR will likely break and sustain the move below 17.00/dlr, especially if S&P Ratings confirms a credit rating upgrade this evening.

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