(22 FEBRUARY 2018)DAILY MARKET BRIEF 2:South African inflation is under control

Since Cyril Ramaphosa took office as South African President last week, economic data and reform on VAT came out yesterday, in an attempt to shake South African investors, but in vain: South African JSE 40 gained 707 points, ending at 51’727 (+1.39% intraday) and heading for its historical highs along 54’000, supported by Financials (+18.72%), Real Estate (+17.26%), Consumer Staples (+4%) while Consumer Discretionary lagged behind (-5.16%). On forex side, the ZAR continues to gain strength, gaining ground against the USD and EUR, valued at 11.66 (-0.56%) and 14.33 (-1%) respectively.

Published data concerned January Consumer Price Index, given at 4.4% Y/Y and 0.30% M/M (in line with both consensus) against 4.70% and 0.50% for the previous month, confirming our stance that inflation remains under control and is decreasing at an accommodative pace. President Ramaphosa also confirmed an increase of current VAT by 1% (from 14% to 15%) in order to tackle growing debt and improve credit rating. The change in VAT rate is supposed to take immediate affect as of April 1st 2018, keeping in mind that the country owns one of the lowest rate among emerging markets (e.g. China: 17%, Russia: 18% - 10%, Brazil: 25% - 17% or India: 28% - 0%).

By Vincent Mivelaz