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From inside the markets

Published:Sunday | April 11, 2010 | 12:00 AM
Vivian Bedassie, Guest Writer:

The Government has so far kept its promise of no new taxes in the FY2010-11 budget presentation. The $503.9 billion in expenditure will largely be funded by way of revenues and grants of $326.3 billion, and borrowings of $176.3 billion. The aim is for a 6.5 per cent fiscal deficit in the current fiscal year, and thereafter, a gradual reduction towards a balanced budget by the FY 2013-14.

Stock Market

In the first full week in the new month, local equities ended on the downside

The main JSE index declined by 0.70 per cent, or 607.15 points, to end the week at 85,846.21 points. Thirty-three stocks traded, with 15 advancing, 13 declining and five trading firm.

The market traded 10 million units with three stocks accounting for 52 per cent of total volume traded. These were Capital & Credit, with 3.35 million units, or 33.51 per cent, followed by Desnoes & Geddes, with 1.03 million, or 10.35 per cent and Mayberry, 12 per cent preferred stock with 823,000 units or 8.23 per cent.

The most significant advancer was CCMB Variable Preferred stock, which gained 10.71 per cent or 15 cents, closing at $1.55.

The heaviest decliners included Palace Amusement, which fell 13.33 per cent or $8 to $52, Scotia DBG declining $2.40 to $20.11, and Seprod down $2 to $24.

The immediate period leading up to the presentation of the national Budget has traditionally reflected a slowdown in trading activity on the equities market. Investors in the past have tended to wait for more detailed information regarding the direction of interest rates, inflation and foreign-exchange rates in order to better inform their investment decisions.

In this regard, this similar pre-budget period for fiscal 2010-11 has been no different, despite the market's strong year-to-date performance.

Average daily trades have slipped below the 100-trade mark, with declining trades beginning to significantly outnumber advancing trades.

Notwithstanding, the prospect of continued stability in the forex market and lower short to medium-term interest rates could act as a catalyst for continued long-term advances in the equities market.

Global Bond Market

Demand for GOJ Global bonds remained buoyant, as high USD liquidity levels in the local market have greatly facilitated purchases.

Supply, though, continues to be tight, and this has led to an increase in prices as investors rush to acquire bonds.

Since January, GOJ Euro Bond prices as a whole have surged to close to or above par.

On January 1, over 90 per cent of the GOJ Euro bonds were trading below par; at the close of today's trading only the eight per cent GOJ 2039 was still trading below par.

The performance of the GOJ 2039 has been one of the most outstanding performers, moving up $22 to $94.50 over the stated period.

During the week, investors indicated strong buying interest mainly in the 9.25 per cent Euro 2025 and both the Air J 2015 and 2017.

With rates on repos declining, the search for higher returns has caused many investors to look in the direction of blobal bond markets.

How the bonds traded:

GOJ nine per cent 2015 traded moderate volumes at $107.50. Offers closed the week at $108 while closing bids were at $107.

The 10.625 per cent GOJ 2017 traded small volumes between $115.50 and $116. Closing bids were $115 while there were no offers.

Bids on the 11.625 per cent GOJ 2022 were at $137 while offers were at $140. No trades were reported.

The 9.25 per cent GOJ 2025 did not trade but bids were at $106 and there were no offers.

There were no trades on the AirJ 2015 but bids were at $103.50, and there were limited offers at $105.50.

The 2039s traded moderate volumes at $96. There were no offers at the end of the week but bids closed at $96.

Foreign Exchange Market

Demand was particularly weak in the foreign-exchange market this week as end-users are still recovering from the impact of tax payments made in the previous month.

US dollar supplies, though, continued to improve with inflows from a wide-cross section of sectors.

The selling rate fell as low as US$89/J$1 during the period.

As a result, we expect a continuation of the revaluation, which the local currency has been experiencing over the past few weeks.

On Thursday, the weighted average exchange rate closed at $89.27 and closed at J$89.19 on Friday.

Written for Sunday Business by Vivian Bedassie, Executive Wealth Advisor at NCB Capital Markets Limited.