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Markets remain bullish despite imminent Cabinet announcement

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THE MARKETS ON MONDAY COLUMN: The financial markets – namely equities, property equities, the rand and the bond market – all had a stronger-than-expected run last week, writes economist Chris Harmse.

The all share index on the JSE gained 3.5% last week and reached a new record high of 80,713 points on Thursday. File picture: Independent Newspapers

THE AGREEMENT between the ANC and other political parties managed to get a thumbs up from the rest of the world. The financial markets – namely equities, property equities, the rand and the bond market – all had a stronger-than-expected run last week.

Although some analysts and political commentators are a bit worried about what the new Cabinet will look like, such as how big it is going to be and who will get the important portfolios of finance, trade and industry, labour, mining and education, financial markets appeared not to be too nervous at the close on Friday.

The all share index on the JSE gained 3.5% last week and reached a new record high of 80,713 points on Thursday. The financial 15 index, as a barometer of domestic market sentiment, jumped by 6.25% last week and is now 6.5% higher for the year to date.

Market sentiment towards a better political and economic environment, both over the long and the short run, is best illustrated by the property index. The JSE’s Listed Property Index increased by 2.03% last week and is now 4.5% higher for June, 6.7% since the beginning of the year, and 19.4% over the past year.

The stronger rand since the day of the election also measures global sentiment. Despite weaker metal and commodity prices since the beginning of June, the positive sentiment contributed much to the currency gaining eighty cents against the dollar since the election, trading lower than R18.00 to the dollar (R17.96/$) on Friday. Against the pound the rand has improved by 123 cents since the election date, to R22.72/£ on Friday.

On the economic front, the biggest challenge for the Government of National Unity is to turn around from the devastating direction economic growth and unemployment has taken since the beginning of the Jacob Zuma administration. The economic growth rate deteriorated dramatically from 2008.

The economy, after growing at an average rate of above 4% between 2003 and 2007, worsened to levels of less than 1%. The average economic growth rate was 0.7% from 2014 up to the first quarter of 2024. The unemployment rate also had shot up, from average levels of less than 25% during the ten-year period prior to 2014, to near 30% over the past ten years.

The inflation rate, however, managed to remain within the inflation target band for most of the past 20 years. This is despite the deprecation of the rand from R7.06/$ at the end of 2007 to the current R18.00/$. This illustrates the importance of the success of the SA Reserve Bank’s management of monetary policy.

This coming week, financial markets in South Africa will be dominated by the detail of the new Cabinet of the Government of National Unity. The Reserve Bank will publish its leading Business Cycle Indicator on Tuesday. The FNB/BER Consumer Confidence Index for South Africa for quarter two 2024 will be published on Thursday.

The index recorded minus 15 in the first quarter of 2024. This was the highest in five quarters, improving strongly from the minus 17 in the previous quarter, quarter four of 2023. The balance of trade numbers for May, as well as the all-important budget balance figures for May, will be announced on Friday.

Movements on global markets this week will be dominated by the release on Thursday of the US durable goods orders for May, and the final estimation of its gross domestic product economic growth rate during the first quarter.

* Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.

– BUSINESS REPORT

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