Flash Briefing: Eskom weighs down Moody’s; SA bonds sidestep EM jinx; Cosatu wants cabinet cut; Anglo

By Linda van Tilburg

In today’s business headlines…

  • South Africa has managed to break the emerging markets jinx as bonds managed to dodge losses. While the average benchmark bond in emerging markets has handed investors a loss of 0.8% this month, the country’s sovereign debt has given a total return of 1.9%, the most among 25 developing nations tracked by Bloomberg. Analysts say South African bonds had quite a bit of risk priced in them, which is unwinding post-election. If Ramaphosa’s cabinet is the right mix, further gains would be possible.
  • The risk of South Africa losing its only investment-grade rating could increase now that Moody’s Investors Service has decided to include Eskom’s colossal debt load in the country’s overall fiscal-strength calculations. Moody’s now includes the power utility’s government-guaranteed debt in its assessment of the nation’s fiscal situation because the utility can’t service its obligations without the state’s backing. The ratings company sees South Africa’s debt burden increasing to more than 70% of gross domestic product over the next few years, a trend that contrasts with Baa3-rated peers, which include the Bahamas and Hungary, it said.
  • With the elections over, investors and ratings agencies are now eyeing President Cyril Ramaphosa’s next cabinet with high hopes of a more streamlined administration free from ministers tainted by corruption. Investors want clarity on the positions of Finance Minister Tito Mboweni and Public Enterprises Minister Pravin Gordhan. Meanwhile Cosatu has been lobbying  Ramaphosa to cut the size of his cabinet to 26 ministers and a maximum of six deputies, and exclude anyone implicated in corruption.
  • News from Britain is that Prime Minister Theresa May took a major step closer to leaving office in the face of growing demands to quit over her failure to deliver Brexit. The embattled premier agreed that next month she will set out a timetable for her exit. Read our satirical columnist Simon Lincoln Reader’s take on May on the Biznews website.  He says her fortunes are a stark reminder to the Democratic Alliance to not “be a movement based on reaction, consider yourself too proud to scrap in the gutter, do not lead so much as respond – because quickly you will find yourself in an uncomfortable position, staring at nothing but the two cheeks of your own bottom.”
  • There are plenty denialists out there of the Ramaphosa effect on the election and it comes not only from the ANC’s Ace Magashule, but also from the DA’s Helen Zille. Have a look at our own Alec Hogg’s numbers on the Biznews website where he shows that almost 200,000 DA voters abandoned the party at the national level, moving mostly from Mmusi Maimane to Cyril. And how there were similar switches on their national voting decisions by provincial supporters of the EFF and IFP.
  • The Johannesburg Stock Exchange ended yesterday’s trading slightly higher following increases across most of the equity indices. The Rand rose to R14.13 against the dollar before it came under pressure and ended the day on R14.22.  The biggest JSE winners were resources shares; Kumba Iron Ore Ltd rose 5.65%, while Assore climbed 4.46%. News that Anglo American will be building a new diamond-mining boat to operate off the Namibian coast, a sign that the company is willing to spend on growth pushed Anglo American shares up 2.31%. Investec showed resilience despite Brexit and sluggish growth in South Africa. Its earnings rose by 5.8%.  Investec shares ended the day 3.66% higher.