While the Fed’s announcement on Wednesday that they will be looking to raise rates by 0.5% going forward (as opposed to the last four moves of 0.75%) moved markets very positively on the day, we’ve chosen to focus on the local political story of the week, which is also making international headlines.
As the independent panel concluded, also on Wednesday, that President Cyril Ramaphosa has a case to answer to before parliament, reports circulated on Thursday that he had summarily decided to step down and take a very un-ANC-like approach in doing the honourable thing. It seems that he was quickly convinced to reconsider – at least for a few days – by his caucus, and the nation will anxiously await the outcome which is reportedly going to be communicated on Sunday. Whatever his decision, current circumstances certainly seem to imply that his prospects of re-election as ANC president at the elective conference, which begins on 16 December, have been materially dented.
While we have been very disappointed in the lack of impact of Ramaphosa’s presidency and his inability to be decisive, we have, for a few years now, been raising the “better the devil you know” argument as put forward to our clients, asset managers and other contacts, asking who in the ANC they would rather have lead the country. The alternatives, we felt, were quite terrifying.
The markets certainly seem to agree, as the rumours of his pending resignation caused the rand to weaken by over 6% from Wednesday’s best levels to Thursday’s worst levels and the local bond yields rose the most since December 2015, which was when former president Zuma thought it opportune to replace the then finance minister, Nhlanhla Nene, with the short-lived Des van Rooyen.
There are some schools of thought, however, that the prospect of his departure is not that disturbing. Depending on one’s perspective, it could either lead to an ANC president that is more decisive and able to take the country forward more quickly, or, if you have less faith in the ANC, it could certainly accelerate their demise and help the country move beyond their political dominance much more swiftly than with Ramaphosa at the helm. This could possibly be via an early general election, which is what the DA is opportunistically calling for, or more likely the ANC losing their majority in 2024 and no longer being in power, even with the support of the EFF.
Either way, the investment markets do not enjoy uncertainty, and this has been, and will be, reflected in local asset prices. Issues such as this have been, and continue to be, part of our justification for having increased offshore exposure in our clients’ portfolios. In a year like 2022, however, where almost all global asset classes have fallen, and even local assets have yielded negative returns in dollar terms, one might argue that the safest place for your money would have been under your mattress. We now know for sure that the best place is definitely not in your couch!
“Ramaphosa’s reform agenda has been underwhelming to say the least. Doubts will remain as to whether another ANC candidate can kick start that process, but we surely know that Cyril Ramaphosa is unlikely to deliver what is needed.”
– Cristian Maggio – head of portfolio and ESG Strategy at TD Securities
Global News
- There was a rally in US stocks while bonds powered ahead after a speech by Federal Reserve Chairman Jerome Powell on Wednesday, but some investors believe a looming recession could cap gains in both asset classes. Powell indicated a shift to 50bps rate hikes from this month, which some will see as showing that inflation has slowed. However, further comments from other Fed members indicate that rates could stay elevated into 2024.
- US economic growth eased this fall with business activity in some parts of the country stalling or declining, the Federal Reserve has said, despite third-quarter growth being stronger than previously estimated and demand for workers remaining elevated in October. These are signs that a tight labour market and resilient consumer demand are propping up an economy struggling with persistently high inflation.
- Gross domestic product increased at an annual rate of 2.9% from July to September, up from an initial estimate of 2.6%, the Commerce Department said on Wednesday. Larger consumer spending and business investment estimates were behind the growth revision. Businesses also expressed greater uncertainty and increased pessimism for the US economy as prices and interest rates continue to rise, according to the central bank’s latest compilation of economic anecdotes from around the country, known as the Beige Book.
- Inflation in Germany and Spain slowed in November, after months of climbing steadily, as lower energy prices helped to ease the pressure on consumers and businesses in two of Europe’s largest economies. However, president of the European central bank, Christine Lagarde, does not believe that inflation in the 19 countries using the common European currency had peaked.
- Growing protests against severe pandemic restrictions in China are injecting a new element of uncertainty and instability into the global economy as inflation, war, and an energy crisis take their toll. Thousands in the world’s biggest economy have taken to the streets in defiance of the law, strict censorship, and the Communists Party’s grip over much of their lives. Reports, however, emerged on Friday that the protests seem to be working as China acknowledged that the current Covid-19 variants were less severe and that vaccination rates had increased, leading to speculation that they might release the draconian lockdown measures.
- NATO allies will ramp up aid for Ukraine because Russian President Vladimir Putin is using winter as a weapon of war due to his forces failing on the battlefield. NATO foreign ministers will focus on increasing military assistance for Ukraine such as air defence systems and ammunition, even as diplomats acknowledge supply and capacity issues, but also discuss non-lethal aid. EU officials are trying to impose a price cap on Russian oil, while the US has pledged $53 million to help fix the east European country’s electrical grid.
- Freelance journalist Kate Thompson Davy argues that Facebook is being forced to face reality amid an existential crisis. “Meta, the parent company of Facebook, WhatsApp, and Instagram, has had another bad week, with news breaking on Monday that it has been hit with a huge, €265 million, fine from Irish regulators for failing to protect user data..
- Apple’s iPhone 14 Pro and Pro Max model shipments could be up to 20 million units lower than previously expected over the holiday quarter due to labour unrest at a Foxconn-operated Chinese factory. TF Securities analyst Ming-Chi Kuo is the latest to ring alarm bells and has trimmed his estimate for quarterly iPhone shipments by about 20% to between 70 million and 75 million units, compared to the market consensus of 80 million to 85 million units.
- As at Thursday’s close the S&P 500 was up 1.25% for the week.
Local News
- The independent panel appointed by the Parliamentary speaker to investigate whether there was any evidence of wrongdoing on Ramaphosa’s part in the Phala Phala saga has said there exists “prima facie” evidence that he breached anti-corruption laws. Coming ahead of the ANC’s national elective conference (16-20 December) this does not bode well for the ANC’s leader at this vote, or his future as leader of the country. Commentator Stephen Grootes has asked whether Ramaphosa, who came to power with a stated agenda of reform, and promised to ‘renew’ the ANC, can really stay in office with such a finding against him.
- Justice Malala, writing for Business Day, sees this Phala Phala mess as one more nail in the ANC’s coffin. “This extraordinary report is just one milestone of an ongoing trend: the self-destruction of the ANC continues apace and its ultimate demise in a post-liberation South Africa is edging closer.”
- Ahead of the panel’s findings, Ramaphosa said the foreign currency stolen from his Phala Phala farm in late 2020 came from the sale of 20 buffalo to a little-known Sudanese businessman. He also denied allegations of torture of the perpetrators as well as accusations that hush money was paid to conceal the events.
- Following on the UK’s example, the South African government has banned Bain from tendering for contracts in the public sector. The firm is accused of destabilising the revenue service and playing a major role in state capture during the leadership of former president Jacob Zuma.
- This comes as censure and monetary fines have been imposed against the former CFO of Ayo Technology Solutions, Naahied Gamieldien, and the former director of African Equity Empowerment Investments, Abdul Malick Salie, for breaching JSE listing rules after the companies were listed in December 2017 by doing business with related parties without disclosing this.
- Government will ban the export of scrap metal for six months as it battles to curb metal infrastructure theft, as announced by trade, industry, and competition minister Ebrahim Patel. Metal infrastructure theft costs the economy R187 billion a year.
- South Africa’s latest unemployment rate fell to its lowest since the first quarter of 2021, although it marked the largest recorded improvement in the labour market since the current employment data series started. The country created a record 1.48 million jobs over the past year yet is not back at pre-Covid levels. Unemployment is now the third largest in the world.
- FM economics writer Claire Bisseker doesn’t agree with the worst doom merchant, who says the South African economy is collapsing and is just a few years away from a debt crisis as the energy and transport infrastructure crumbles, growth slows, and the wealthy emigrate. “A lesson in moderation comes courtesy of ratings agencies S&P Global and Fitch, both of which recently affirmed South Africa’s credit ratings. Granted, they have the country pegged three notches deep into junk, but neither saw reason to downgrade their rating outlooks (S&P from “positive” and Fitch from “stable”) despite our worsening growth prospects and the likelihood that this will lead to fiscal slippage.” However, loadshedding remains South Africa’s largest non-financial risk, according to our own central bank.
- The Public Investment Corporation (PIC), which oversees R2.5 trillion one assets, investing government employees’ pensions, is committed to providing early-stage capital for the development of South Africa’s hydrogen value chain, a key fight against the use of fossil fuels. Veteran journalist and editor Peter Bruce says, however, that South Africa is late to the party and it’s all being inflated by hype.
- A grower-led consortium has submitted a proposal to acquire critical assets of embattled South African sugar giant Tongaat Hulett. If the offer is accepted, agreements would need to be signed soon to enable off-crop maintenance to be completed in time to ensure that the mills are operational for the 2023/24 season. Tongaat Hulett’s South African operations went into business rescue in October with a debt of some R5 billion.
- As at the time of writing, the rand was 2.4% weaker for the week and the ALSI was up 1.8%.
Sources: Dynasty, Daily Maverick, News24, BusinessLIVE, Reuters, Bloomberg, New York Times, WSJ, CNN, TechCentral, etc.