?Budget is rand positive?

Barclays Capital regards this year's budget as broadly rand positive from a capital flow and sound macroeconomic policy perspective.

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Barclays Capital regards this year's budget as broadly rand positive from a capital flow and sound macroeconomic policy perspective.

“The Treasury is subtly suggesting the ZAR could recover from current levels over the next few years and is also looking at reducing the country's foreign debt exposure,” said the group's analysts in their post Budget commentary.

Despite the recent recovery in the rand in recent months, the Treasury was quick to mention that the local unit remains susceptible to any shifts in the level of global risk appetite, which in turn rests heavily on the rate at which global output recovers over the coming years.

The Treasury acknowledged that the rand, together with a number of other emerging market currencies, has been the recipient of the sharp increase in global liquidity in recent quarters. This is in keeping with the renewed foreign appetite for SA bonds that we have seen since the start of the year, they added.

“These recent bond inflows have more than compensated for the foreign withdrawal from SA equities and in so doing ensured that there has been a net positive inflow of portfolio capital this year, after the severe sell-off during H2 11,” the analysts said.

In the year to date foreigners have been net buyers of R8.625 billion of local bonds.

They noted that it was also heartening to see that the officials are also clearly looking to attract increased levels of FDI, given that there is an emphasis to make it 'easier to do business in SA' and also an ongoing desire to promote greater investment into Africa through SA.

“From a trade flow perspective, the Treasury also placed increased attention on the export sector. In this regard, the authorities are looking to improve the country's network infrastructure so as to address the transportation bottlenecks that have has been cited as a reason for why SA has not taken as much advantage of the prevailing commodity boom as one might have expected,” they said.

They added that based on the government's intended foreign borrowing over the next three fiscal years, the rand is implied to average R7.30 over the corresponding period.

“While one shouldn't draw too much of an inference about the exchange rate from these projected foreign bond proceeds, they do imply that the Treasury is more constructive about the ZAR in comparison to both the prevailing spot rate and the ZAR forward curve,” they said.

As expected, there were no changes in exchange control regulation at this year's budget, but it was heartening from an external vulnerability perspective that the Government intends to significantly reduce its foreign debt levels as a percentage of overall debt over the coming years - from 19.9% to 2.9% by 2014/15.

“The authorities are also optimistic that SA sovereign rating outlook will not be downgraded, which would also be supportive for the ZAR from a country risk premia perspective,” they added. - I-Net Bridge

Source: http://www.iol.co.za/budget-is-rand-positive-1.1240509

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