Impact on the investment markets

Chantal Marx, Investment Research Head at FNB Wealth and Investments

This was a good budget from a market perspective. The minister has perfected the art of striking a delicate balance of being both bond and equity friendly. The rand strengthened, bond yields fell across the curve and the equity market held up well. A decline in bond issuances will be positive, as it indicates that government expects its lending requirements to come down.

The fact that there were no meaningful tax changes is equity positive – particularly because there was significant fear in the system regarding the possibility of a one-off wealth tax or solidarity tax. There was, in fact, tax relief for personal income tax payers, with adjustment for bracket creep, as well as for business, with the corporate tax rate declining from 28% to 27% from April 2022. 

National Treasury will publish draft amendments to Regulation 28 for public comment. The proposed amendments seek to make it easier for retirement funds to increase investment in infrastructure. This suggests that investment in infrastructure projects will be optional, and not prescribed as feared by some.     

Some of the more specific impacts on SA equities include: 

• Adjusting for bracket creep will be consumer positive. But this will be partially offset by lower government wages, higher “sin taxes”, increased fuel levies, and below-inflation grant increases. The net effect is still expected to be positive for SA Inc. stocks, banks and retailers.
• A lowering of corporate tax rates from 28% to 27% will be positive for SA Inc. profitability and is a step in the right direction in making South Africa a more attractive market to invest in. The minister indicated that there could be more declines in corporate tax rates going forward.
• Specific to “sin taxes”, excise tax on beer/cider, wine and spirits is to rise ahead of CPI on a blended basis. This will be negative for the likes of Distell and could have a very small impact on the internationals (although BTI and ANH’s exposure to South Africa is small on a relative basis).
• The higher fuel levy will be negative for logistics companies, although many operate on a pass-through basis.
• A re-commitment to improving the composition of spending, by rebalancing spending towards capital expenditure rather than compensation, will be positive for infrastructure players – specifically in the construction space. Support services will also benefit, specifically in equipment and materials.
• The importance of reliable electricity was emphasised throughout the speech and the document. A possible relaxation of energy regulations could result in an improvement in this regard, which in turn will be supportive of economic growth, the general equity market, and energy players locally. This ties back to previous announcements made in this regard by President Ramaphosa during the SONA a few weeks ago.
• There were no new increases in sugar tax or carbon tax announced. This will be positive for food producers and carbon emitters. 

Despite this being a market-friendly budget, implementation will be key – particularly on the reform and expenditure fronts. Here political will to drive growth and boost revenue, and the public sector wage negotiation to keep expenses in check, will be vital.