Mboweni's budget bolsters bullish stock call, says JPMorgan

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PMorgan Chase & Co. strategists said the South African budget has increased their confidence in an overweight call on the country’s stocks made three months ago.

Johannesburg’s benchmark FTSE/JSE Africa All Share Index surged as much as 2% Thursday to the latest of several all-time highs set in 2021. The gains, strongly supported by rallying mining shares, came a day after Finance Minister Tito Mboweni presented a budget designed to bolster consumption and investment, while backtracking on planned tax increases.

JPMorgan upgraded its view on South African equities within its Central and Eastern Europe Middle East and Africa allocation in November. “This budget does a little to boost our confidence in that call,” strategists David Aserkoff and Inga Q Galeni wrote in a note to clients.

Mboweni’s announcement of a cut in the corporate tax rate to 27% from 28% and the possibility of further reductions in future will help domestic stocks, the strategists said. The 5% increase in the tax-bracket thresholds for individuals was among other “broadly positive” moves on taxation, they wrote. The budget made the bond market happy through reduced issuance, while the rand got a boost and local equities were “also smiling,” they said.

South African stocks have climbed 18% since JPMorgan’s upgrade and are up 13% this year, the second-best performance among 92 benchmark indexes tracked by Bloomberg, with the gauge about to close out a fourth month of gains.

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