{"id":207099,"date":"2017-10-24T10:01:57","date_gmt":"2017-10-24T08:01:57","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=207099"},"modified":"2017-10-24T10:01:57","modified_gmt":"2017-10-24T08:01:57","slug":"expert-round-up-of-what-to-expect-from-gigabas-mid-term-budget","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/207099\/expert-round-up-of-what-to-expect-from-gigabas-mid-term-budget\/","title":{"rendered":"Expert round-up of what to expect from Gigaba’s mid-term budget"},"content":{"rendered":"
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With yields among the highest in emerging markets, South Africa\u2019s bond market is already pricing in a lot of bad news.<\/p>\n

It could get worse if Wednesday\u2019s mid-term budget statement fails to reassure investors about the government\u2019s commitment to fiscal prudence.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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Finance Minister Malusi Gigaba faces an estimated revenue shortfall of R40 billion ($2.9 billion) as he prepares to brief lawmakers amid a battle for control of the ruling party that\u2019s stoked political uncertainty and deterred hiring and investment.<\/p>\n

He\u2019ll have to consider cutting spending, raising taxes and selling state assets if he wants to avoid further ratings downgrades that could lead to large outflows from the bond market.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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\u201cWe would look for how Minister Gigaba intends to project fiscal prudence beyond the current fiscal year,\u201d Standard Bank Group Ltd. strategists led by Walter de Wet wrote in a client note.<\/p>\n

\u201cAny deviation from the intention, on paper at least, to compress the budget deficit would be punished by both the bond and currency market.\u201d<\/p>\n

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Yields on the nation\u2019s benchmark bonds due December 2026 have climbed 35 basis points since the beginning of September to 8.85% a three-month high, while the rand weakened 3.8%.<\/p>\n

Three-month implied volatility for the South African currency against the dollar climbed to 17.6% this week, the highest since April, suggesting options traders expect wider price swings in coming months.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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While significant fiscal slippage would hit the bond market hardest, stocks could also be in the firing line.<\/p>\n

Banks, retailers and listed property shares will come under pressure if bond yields rise and the currency weakens, according to Old Mutual Investment Group.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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\u201cInvestors will be on the lookout for signs of fiscal slippage,\u201d John Orford, a money manager at Old Mutual\u2019s Macrosolutions unit, said by email.<\/p>\n

\u201cWhether the MTBPS provides a positive or negative signal for investors, corporate and consumer sentiment, markets are likely to remain cautious\u201d until the African National Congress\u2019s conference to elect a new leader in December, he said.<\/p>\n

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Here\u2019s a round-up of other investor and analyst comments on how the markets could react to Gigaba\u2019s budget proposals:<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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