At the beginning of this year there was a mood of optimism as Ramaphoria took hold in South Africa, and globally with the US seemingly booming on the back of President Trump’s tax cuts the outlook seemed more than a little positive.
We end the year in a somewhat different mood. Here in South Africa, so-called Ramaphoria has been replaced by considerable caution if not negativity as the extent of wrong doing involved with state capture, particularly at State Owned Enterprises, becomes increasingly apparent. The debt burden amongst these institutions is worrying to say the least and in particular the state Eskom finds itself in is of deep concern.
Globally, we will enter the new year with the continuing uncertainty of the US and China trade war and can only hope that the current truce can become permanent. Rising interest rates and a strong dollar will still be with us but perhaps not quite in the aggressive manner previously outlined by the US Federal Reserve.
When looking at the global picture, it should be remembered that with an election due in the US in two years, President Trump will want to have settled his trade and other disputes and avoided any possibility of a global recession instigated by his policies. This factor alone may well prove to be a positive over the next couple of years.
In all this it is fair to say that markets have largely priced in the negatives – some say excessively – so that any good news will be a considerable boost as we have already seen with the trade war truce. In South Africa forecasts suggest we should return to sustained positive growth although the Eskom bugbear is likely to continue. Still, predicted growth of 1.8% for the year is considerably better than the recessionary economic position of a short while ago.
President Ramaphosa may still be hamstrung to quite an extent as he deals with what appears to be a worrying push back by the old corrupt order. Uncertainty in this regard is likely to continue until after the general election which is expected in April or May.
However, it does appear that South Africa’s president is in the process of a careful rebuilding process. Already he has induced a positive response from local business and foreign investors via the recent Investors Summit and similar initiatives. As a result, local business has committed R290 billion and foreigners $40 billion for new investment projects. Once this starts flowing it must surely be positive for growth and jobs. A great deal more work needs to be done but clearly government now understands that.
The appointment of Tito Mboweni as Finance Minister appears to be a master stroke and together with this new rapprochement between government and business the future is a lot brighter than it has been for some time.
With South Africa’s cheap currency and cheap assets, it looks good for foreign investors to take more of an interest in this country rather than some of our emerging counterparts.
It seems that a combination of factors should see South Africans much happier in 2019. Nevertheless, we can’t just wish away the various headwinds facing us and a great effort by everyone in the public and private sectors will be required if we are to see a return to growth.
Finally, to quote Jeremy Gardiner, a director at Investec, when asked the question: “So what should investors be doing”, he answered thus:
“Very simply, nothing. Aside from 2008, this past October was the worst since 1998, so markets have already corrected. The adjustment for bad news is priced in. Even a full -scale tariff war is priced in, as are our problems in this country. Any (permanent) resolution of the US-China tariff war will be potentially positive and, at some stage, investors, both foreign and local, should notice that our president is re-building the SA castle one brick at a time.
Markets go up and markets go down; that’s just what they do. The most difficult part of successful investing is not getting emotionally involved by allowing fear or greed to drive investment decisions. If you’ve invested correctly according to your risk profile, then relax and wait for this to blow over. On multiple fronts calmer skies are predicted for 2019.”
- 5 Dec, 2018