Back to Reality… Balancing the Budget 2018

Back to Reality… Balancing the Budget 2018

Last week saw a strong bounce following Zuma’s ‘sudden’ resignation after re-iterating he “hasn’t found someone that can tell him what he has done wrong”. 

 

Traders started to take profit on Friday, which will see the markets trend lower before the budget speech this week. 

 

This sell off could be one of the last dips before a broader rally as President Ramaphosa tries to invigorate investor confidence to grow the economy as quickly as possible. He has tabled a ten “project” plan to do so. 

 

But first he will most likely have to shuffle a number of Ministers that have been complicit or turned a blind eye to state capture. This would mark a turning point and indicate the President is willing to clean house. 

 

International investors will be eyeing the budget speech this week to see if fiscal and monetary discipline will improve to plug the deficit of +/- R50 billion. 

 

Reigning in the bloated public sector that employs over 3.5 million people should be the starting point, but it will most likely be from increasing taxes to start. 

 

Expect increased levies on fuel, sin tax increases, an accelerated implementation of sugar tax and a wealth tax in some form or another. We could even see VAT on fuel and property rates, both have a lower probability than other mentioned tax increases. 

 

The week ahead: 

  • Local economic data releases: CPI (21/02) 
  • Results Expected: ANG, BIL, DSY, IPL, NRP (20/02); AIP, BID, CCO, GLN, JSE (21/02); AFX, AGL, ASR, BTI, BLU, CAT, CND, GRF, ITU, MSM, MST, SGL, SUR, TPC, TRU, WHL (22/02); CLU, DST, NHM (23/02) 
  • LDT 20/02: MIX 

Last week’s movers and shakers… 

Other Economic data releases of interest… 

  • Wednesday: Average Earnings, Inflation Report Hearings (UK); FOMC Meeting Minutes (USA) 
  • Thursday: Second Estimate GDP (UK); ECB Monetary Policy Meeting Accounts (EU); Retail Sales (CAN); Crude Oil Inventories (USA); Retail Sales (NZL) 
  • Friday: CPI (CAN) 

 

One to Buy 

Anglo American offering better value 

 

President Ramaphosa has given confidence to investors in announcing new negotiations around the Mining Charter. This is set to create a mutually beneficial relationship between all stakeholders. SA mining will benefit and offers an ideal opportunity to increase exposure to this sector. 

 

We like Anglo American on a PE of 9.2 while its peers are on more demanding multiples.  

 

Buy AGL below R285.00 

 

Losers to Sell 

With the tax year end approaching fast, investors should consider netting off any losers against winners to reduce their capital gains.  

 

This will allow you to re-base your purchase prices higher on the stocks you still want to hold onto going forward. You will effectively reduce tax payable. 

 

Long Term Ideas 

  • Sasol: Buy below R400. Results due next week 
  • Aspen: Trading statement very positive. Buy below R260. Results due 8 March. 
  • Sygnia: Buy below R12.50. 
  • PPC: Moving in the right direction, up over 10%. Hold 
  • Santova:  Buy below R3.00.  
  • Merafe: Accumulate below R1.55. 
  • Jubilee: Zambian mining rights at risk. Hold. 
  • MTN: Buy Dips below R122.50 
  • Glencore: Results out 21 February. Strong support at R60. Hold 
  • Wescoal: Long term buy. Add below R1.80 
  • Naspers: Buy dips below R3,300, while ensuring you aren’t over-exposed.  

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