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Johannesburg - Share prices on the JSE were down on Tuesday as investors are concerned about the possibility that the government will be forced to increase its budget deficit estimates when Finance Minister Nhlanhla Nene presents his mid-term budget on Wednesday.
The fear is that bad news about the budget can eventually lead to another credit rating downgrade, which the economy and the financial markets can ill afford at this stage.
This is probably the reason why the rand could not break through the R13.00 level on Monday and again traded at R13.24 at midday.
By midday the major indices on the JSE were more than one percentage point down, and Imara SP Reid said in its daily Market Snapshot on Tuesday that the market is still overbought in the short term.
The All-share index was 1.04% higher at 52 61 points at noon and the Top 40 index was 1.06% softer at 47 233 points.
The resources sector was the big loser, with the Resources 10 index losing 2.38% and the gold sector 2.22% as the recovery in commodity prices due to the weak dollar loses traction. The Financial index was 1.04% softer and the Industrial index lost 0.94%.
Analysts on Tuesday morning said there are fears that the rand could come under renewed pressure if US housing numbers to be released later in the day support the case for a rate hike in the world’s biggest economy. The rand is currently underperforming its emerging market peers, leaving it vulnerable to stronger than expected housing data from the United States.
But the talking point on Tuesday was whether the government will be forced to abandon its budget-deficit targets as economic risks mount, straining the nation’s credit rating as it hovers above junk.
Nene is set to downgrade growth and tax revenue forecasts when he presents his mini budget on Wednesday. The target for the fiscal gap in the year beginning April 1 will probably increase to 3.2% of gross domestic product from 2.6%, according to the median estimate of 12 economists surveyed by Bloomberg.
The government will probably lower its GDP forecast of 2% for this year and 2.4% in 2016, bringing it more in line with the Reserve Bank’s projections of 1.5% and 1.6% respectively.
That will curb revenue targets and widen the fiscal deficit unless Nene can reduce expenditure at the same time, a commitment that may prove difficult to make given the higher pay increases given to civil servants this year.
South Africa can ill afford a credit rating downgrade, with interest payments on debt already making up almost 10% of government spending.
Platinum shares were under pressure on Tuesday with Anglo American Platinum [JSE:AMS] losing 4.57% to R58.14 and Lonmin [JSE:LON] shedding 4.6% to R5.60. Lonmin recovered from R3.12 on September
27 to R8.07 on October 8, but has given up half of those gains since then. Before Tuesday the share price lost 27.2% over the past seven days and it is still 77.6% lower for the past 90 days.
Anglo American [JSE:AGL] also recovered strongly from September 28 to October 8 when the share price jumped from R115.00 to R147.22, but since then the stock also gave up two-thirds of that recovery. Anglo lost 12.6% over the past seven days before Tuesday and traded another 1.83% lower at R126.32.
FirstRand [JSE:FSR] was again one of the busiest shares on the JSE on Tuesday with more than 7.5 million shares trading for more than R373.7m. The share price traded 0.72% lower at R49.63 but is virtually unchanged over the past seven days. Standard Bank [JSE:SBK] traded 1.09% weaker at R146.32.
Shoprite [JSE:SHP], which lost more than 7% of its value on Monday after some disappointing sales figures for the three months till the end of September, lost another 2.97% to R144.65 on Tuesday. Other retailers also lost more than 1%. Woolworths [JSE:WHL] was 1.8% softer at R101.01 and Mr. Price [JSE:MPC] traded 1.03% down to R204.22.
