DA fights fresh taxpayer SAA bailout; Rand world’s most undervalued currency; China; Foschini

By Jackie Cameron

• The Democratic Alliance has served Finance Minister Tito Mboweni with legal notice of its intention to challenge another taxpayer-funded bailout of SAA. Mboweni has signed a letter committing “to mobilise funding for the short, medium and long term requirements to create a….national airline”, says the DA. “It remains to be seen where they will find the money. It would be totally unacceptable to inject yet another bailout into SAA using public money, or to offer government guarantees for new loans,” it adds, noting that  SAA has received nearly R50bn in bailouts and guarantees over the last decade.
• South Africa is one of the world’s most undervalued currencies. That’s according to the Big Mac Index, produced by The Economist, which has the rand at the bottom of its league table of poorly performing currencies. As a lighthearted guide to whether currencies are at their “correct” level, it is based on the theory of purchasing-power parity. This is the theory that exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. The Economist says its Big Mac index suggests the British pound is 25% undervalued against the US dollar and the rand is nearly 70% undervalued against the base currency of the US greenback. “A Big Mac costs R31.00 in South Africa and $5.71 in the United States. The implied exchange rate is 5.43. The difference between this and the actual exchange rate, 16.67, suggests the South African rand is 67.4% undervalued,” it says.
• China has become the first major economy to return to growth since the coronavirus started sweeping across the world earlier this year, says BizNews partner Wall Street Journal. China said its economy grew 3.2% from a year earlier in the second quarter, as authorities benefited from an aggressive campaign to eradicate the virus within its borders. In sequential terms, China’s second-quarter growth in gross domestic product represented a 11.5% rebound from the first three months of the year, according to data released by Beijing’s National Bureau of Statistics. For the entire first six months of the year, China’s economy contracted just 1.6%. There is a full report available in BizNews Premium.
• South African retailer TFG Limited priced its R3.95bn ($237m) rights issue at a 40.6% discount on Thursday as it pressed ahead with plans to reduce debt to cope with the coronavirus crisis. The owner of the Foschini and @home chains said in a statement it would offer 40 new shares for every 100 ordinary shares held at an issue price of R41.90, reports Reuters.