MARKET UPDATE US Elections and SA MTBPS - Carrick ...
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MARKET UPDATE US Elections and SA MTBPS
4th Quarter House View
| CORE INVESTMENT THEMES
SA MTBPS C-19 2nd Wave vs. Vaccine
U.S. Presidential Elections Brexit
Investment Stimulus Search for Yield
Medium-Term Budget Policy Statement
MTBPS: What were the Key Outcomes? The tabled medium-term budget is one of the most important within the context of a global pandemic and a ravaged local economy: 1 GDP Growth Forecast 4 Revenue and Expenditure 2 Debt to GDP 5 Budget Credibility 3 Debt Trajectory 6 Budget Risks Debt continues to increase, no signs of much needed structural reform, in short not enough urgency.
GBP Growth Forecast
SA National Treasury and STANLIB
National Treasury expects SA’s economy to contract by 7.8% this year. Growth
estimates for 2021 (3.3%), 2022 (1.7%) and 2023 (1.5%) are conservative and there
should be scope for an upside surprise.
Debt to GBP Middle of the road but if wage freeze collapses, it becomes impossible for SA to avoid the passive scenario which will lead to prescribed assets, capital controls, debt monetisation and possibly an eventual default – “a failed state”.
Debt Outlook
Debt Outlook as % of GBP Projected Three-Year Increase in Debt
SA National Treasury and STANLIB SA National Treasury
In June, National Treasury estimated that gross debt would South Africa’s three-year increase in debt to GDP is the
reach 81.8% of GDP in the current year, or R3.9-trillion, up largest among its developing country peers.
from 63.3% or R3.2-trillion in February. Gross national debt is
projected to stabilise at 95.3 per cent of GDP by 2025/26.
Revenue Expenditure
SA Budget Revenue / Under Collection Revenue / Expenditure
SA National Treasury
SA National Treasury and STANLIB National Treasury has budgeted to spend R306-billon
Government has projected tax increases of R5 billion in less than they had previously projected over the next
2021/22, R10 billion in 2022/23, R10 billion in 2023/24 three years – this is in line with earlier projections. A big
and R15 billion in 2024/25. Effectively tax increases of part of this reduction will come from limits to wage
R40-billion over four years. increases.
SA’s Budgeted Forecasts - Credibility Considering that government’s decision to renege on agreed wage increases this year is still to be challenged in court, it remains to be seen whether the cuts pencilled in can be achieved.
Budget Risks
The major short- to medium-term risks to the fiscal framework include:
• Uncertainty around the speed of the economic recovery – including the medium- term effects of the lockdown,
both domestically and internationally. Globally, several developed economies have returned to strict lockdowns.
• Implementation risks for expenditure reductions, particularly on the wage bill. Both the upcoming decision on the
final year of the current wage agreement and the upcoming wage talks pose significant risks to the expenditure
ceiling (political appetite). In the current fiscal year, about 60% of all taxes collected will go to pay public sector
wages. In other words, 2.5% of the population will consume 60% of all taxes.
• Additional spending pressures from state-owned companies. Several companies, including South African Airways
(R10,5bn), are insolvent and have insufficient funds to cover operational expenses. The budget does not
elaborate on how demands from these indebted SOEs, Eskom, Road Accident Fund, social security funds and
municipalities will be addressed.U.S Presidential Elections
U.S. Elections: Why is the Outcome Important?
The outcome of the U.S. Presidential Election could have significant
implications for several key policy areas including:
1 Fiscal Stimulus 4 Regulation
2 Public Investment 5 Foreign Affairs
3 Taxation
The US election on 3 November 2020
Sources: BlackRock EII EMEA investment Strategy, Oct 2020What will be voted on in November?
The race for the White House is the main focus, but a president’s ability to achieve its policy goals is
influenced by who controls Congress.
Americans will be asked to cast 3 votes
1. The Electoral College:
• US employs electoral college system
• This means the most votes ≠ president
• Votes are tallied at state level
• The winner in each state earns the “electoral votes” that belong to that state (based on population size)
• Candidate needs to win at least 270 of the 538 electoral votes in order to win the presidency.
Sources: BlackRock EII EMEA investment Strategy, Realclearpolitics, Oct 2020What will be voted on in November?
2. The Senate:
The Senate The House of
• US senators serve six-year terms = roughly a third of the 100 seats Representatives
435 seats
100 Senate seats are up for grabs each election.
• Currently the Republicans control the Senate.
• There are 35 seats up for election this year (23 held by
Republicans; 12 currently by Democrats).
• To win control of the Senate, the Democrats would need to
keep all of their existing seats and flip three.
Sources: BlackRock EII EMEA investment Strategy, Realclearpolitics, Oct 2020What will be voted on in November?
3. The House of Representatives:
The Senate The House of
• Each of the 435 seats in the House are up for election in 100 seats Representatives
435 seats
November, with the winners serving a two-year term.
• Currently the Democrats control the House.
• For the Republicans to win back control, they would need
to win 21 additional seats and hold on to two vacant seats
that were previously held by Republicans.
Sources: BlackRock EII EMEA investment Strategy, Realclearpolitics, Oct 2020Policy Differences
Issues Trump Biden
Increase taxes on corporate income, high earners,
Taxes Maintain or extend 2017 tax cuts
and capital gains
Heightened regulation on energy, technology, and
Regulations Reduce regulation on energy and financial services
financial services
Energy and enviroment Increase energy production Reduce emissions and increase energy efficinecy
Foreign policy America First, unilateralism Renewed emphasis on alliances and multilateralism
Healthcare Undo the Affordable Care Act Protect and build Affordable Care Act
Labour No change $15/hr minimum wage
Infrastructure Favour big infrastructure spending
China policy Tough on China
Federal budget Run big deficits
Sources: Donald Trump and Joe Biden campaign websites, J.P. Morgan Private Bank. June 30, 2020CONTACT US
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