Week in Review: SAA Placed Under Business Rescue

It was an eventful week on the South African calendar with SAA announcing that it will be placed under business rescue as well as the South African 3rd quarter GDP announcement.

Minister of Public Enterprises, Pravin Gordhan announced on Thursday that South African Airways (SAA) will be placed under business rescue, stating that the decision is the optimal mechanism to restore confidence in the airline, safeguard its good assets, and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner. A business rescue practitioner will be chosen to take charge of the business and perform the function of operating the airline with the assistance of management. The practitioner will also undertake such rationalizations as are necessary.

South Africa’s 3rd quarter GDP data was released on Tuesday, worse than expected. Annualised GDP recorded an unexpected drop of 0.6% compared to the market’s expectation for a 0.1% increase – more detail provided in the chart of the week.

Staying with SA news, the ANC reclaimed control over Johannesburg this week, back from the Democratic Alliance (DA), when its candidate, Geoff Makhubo, was elected the city’s mayor. Makhubo garnered 137 votes against 101 for the DA’s Funzela Ngobeni and 30 for the Economic Freedom Fighters’ Musa Novela.

The JSE All Share Index ended the week largely unchanged (-0.08%), with resources (+2.38%) stronger against weaker industrials (-1.73%) and financials (-0.44%) sectors.

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Market Moves of the Week

Globally, economic fundamentals stole the spotlight from trade-deal expectations, with a fourth straight month of improvement in global manufacturing PMI, a proxy for global growth. The surveys are consistent with a still soft but improving demand environment, which suggests that the manufacturing downcycle may have run its course.

The U.S. proposed tariffs on roughly $2.4 billion in French products, in response to a tax on digital revenues that hits large American tech companies including Google, Apple Inc., Facebook Inc. and Amazon.com Inc.  In addition, tariffs were reinstated on Brazilian and Argentinian steel.

The Eurozone reported annualised 3rd quarter GDP growth of 0.2%, in line with market expectations. In the previous quarter, GDP had registered a similar rise.

Japan announced a fiscal stimulus package this week. The total package amounts to around 26 trillion yen ($239 billion), boosting Japanese growth by about 1.4 percentage, according to the draft.

For the week, global equities were mixed. In the U.S., the Dow Jones (-0.13%) and Nasdaq (-0.10%) Indices were marginally weaker whilst the S&P 500 Index (+0.13%) managed to end the week in positive territory. In Europe, the Euro Stoxx 50 (-0.32%) and FTSE 100 (-1.45%) both ended the week in negative territory whilst Asian markets were stronger: Nikkei 225 (+0.26%) and Shanghai Composite Index (+1.39%) both positive.

Market Moves for the Week -8 Dec 2019
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Chart of the Week

South Africa’s economy contracted by a shocking 0.6% (quarter-on-quarter annualised) in 3Q19, in contrast to market expectations for a 0.1% expansion. This weakness was quite pervasive with six of the 10 sectors contracting including: mining, transport, electricity, manufacturing, agriculture and construction. Only the trade, government, finance and personal services sectors expanded. With pledges to boost South African economic growth to as much as 5% by 2023, President Cyril Ramaphosa couldn’t have had a more difficult start to his presidency with four bad GDP quarters out of seven.

Chart of the week 8 Dec 2019

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