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SONA likely to be a damp squib for investors

11 February 2016 Francois van der Merwe, Novare
Francois van der Merwe, Head of Offshore Investments, Novare.

Francois van der Merwe, Head of Offshore Investments, Novare.

In the past, President Jacob Zuma’s State of the Nation speech has never been a market-moving event, but when he steps up to the podium tonight, he will be facing a crisis of confidence that needs to be addressed. That makes this one of the most anticipated SONA addresses from the President, as many investors will look to the speech to gauge the political and economic future of the country, and whether a credit rating downgrade can be averted.

As usual, it is expected that the President will adopt an optimistic and populist tone in his speech. This address will probably be more political in nature than previous iterations due to the municipal elections that will take place later this year, and he will try to appease all and sundry. However, the SONA is normally not the platform where policy changes are announced. For this reason many investors will end up viewing the speech as a damp squib. Two key points to watch out for, however, will be detail on the government’s nuclear ambitions, and strategy regarding the struggling state-owned enterprises.

Despite its importance, the State of the Nation speech will probably be overshadowed by Finance Minister Gordhan’s budget speech later this month. The budget speech will provide proof of whether the government is serious about tackling structural issues, and whether the talk can actually be walked.

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