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A downgrade

25 October 2004 Angelo Coppola

The rand extended its gains against major currencies, reaching an intra-day level of R6,1747 against the US dollar on Friday before easing to close at R6,22.

The Nedcor Economic Unit reports that this was stronger than the previous week’s close of R6,47. A broadly weaker dollar and an announcement by another rating agency, Fitch, of a possible sovereign rating upgrade boosted the local currency.

Against the euro and the British pound, the local unit strengthened to R7,83 and R11,35 respectively from R8,04 and R11,65. Continued strength in the rand boosted bond prices.

The yields on the on the longer-dated R153 2010 and the R194 2008 reached new lows of 8,505% and 8,215% respectively during the week, before closing at 8,54% and 8,26% respectively from 8,65% and 8,37%.

Sluggish global equity markets and the stronger rand continued to weigh on domestic equities.

The FTSE/JSE all-share index lost 187,7 points or 1,6% to end the week at 11 647,2 from the previous close of 11 834,8, while the resources index was down by 4,6% or 528,1 points to 10 881,0.

The financial and gold indices showed losses of 0,1% and 3,5% respectively, closing at 11 390,1 and 2 049,5 respectively from the previous week’s close of 11 396,8 and 2 123,5. The industrial index bucked the trend and gained 0,7% or 71,7 points to 10 090,9 from 10 019,2.

Government announced plans of new investments to be undertaken by Transnet, Eskom and the private sector, targeted at around R165 billion over the next five years.

This investment will be concentrated within the energy and transport sectors. New capacity construction to meet energy needs as well as rail and port infrastructural development is envisaged in the new plan.

However, government reiterated its committment to the eventual listing of these parastatals.

International rating agency, Fitch, revised South Africa’s rating to positive from stable.

The agency said the change in outlook was based on continued improvement of South Africa's credit fundamentals over the past year, especially external liquidity and reduced external debt burden as well as the expectation of higher growth over the medium term.

Quick Polls

QUESTION

As National Treasury mulls a two-bucket retirement system, mandatory contributions and preservation, regulation 28 is being amended to allow up to 40% of retirement fund assets to be invested in SA-based infrastructure… Which of the following retirement fund ‘tweaks’ would you consider most beneficial to your clients?

ANSWER

Give fund members emergency access to retirement savings
Let fund members invest 40% in infrastructure
Let fund members invest 40% offshore
Mandatory preservation when resigning from a fund
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