The fear from investors that COVID-19 will have an impact on global supply chains and in turn, corporate profitability, has resulted in a stampede towards safe-haven assets. This has resulted in markets falling between 10% and 14% and some of the biggest drawdowns since the 2008 Financial Crisis. We, at Dynasty, do not know exactly how deep the reversal will be but we expect a rebound in equity markets and a partial recovery in emerging market (EM) currencies once it is clear that the virus is under control.
Exclusively for Dynasty
We have asked Robyn Rogers, our tax consultant, to provide insight into this week’s budget speech, with particular focus on what it means for our clients. For instance, there have been changes to exchange control, which has received very little coverage in the general press. For Robyn’s notes please follow this link.
- Global shares are heading for the worst week since the Financial Crisis in 2008. This comes as investors fled to safe-haven investments as COVID-19 infections spread, threatening to derail economic growth.
- COVID-19 is on its way to becoming a pandemic with most of the new cases reported being outside of China. Cases in Italy have soared, Norway has its first case, as well as Brazil and Nigeria. So far, the global death toll stands at almost 2,800 with more than 81,000 people ill.
- More information is coming out on how businesses will be impacted by the spread of COVID-19. Microsoft shares fell by 7% after the company announced that its sales in the current quarter would be less because of the effect of the outbreak on its supply chain. Anheuser-Busch InBev, forecast a steep drop in quarterly profits after which its shares fell by 9%.
- China has banned the trade and consumption of wild animals. Scientists suspect that COVID-19 passed from animals to humans (thought to be spread from pangolins). Some of the earliest infections were found in people who were exposed to wildlife at a market in Wuhan.
- The budget speech was generally well-received with some relief to taxpayers. For information on the budget speech given by Tito Mboweni please have a look at Robyn’s article above, but if you would like more information follow this link for the full speech and this link for a clear summary.
- After the budget speech announced cuts in the public wage bill, Cosatu announced that it will fight against it saying that the cuts are, “an ambush and a declaration of war”.
- The unemployment rate continues to be a massive burden on the South African economy, as well as the health of State-Owned Enterprises. Since the rand strengthened slightly after the budget speech it has ended the week far weaker after EMs felt the impact of markets shifting on COVID-19 fears. We do not think that the budget speech was enough to deter Moody’s from downgrading South Africa to junk status. We are unsure whether this will occur in March 2020 or at a later date.
- South Africa will quarantine 132 citizens evacuated from Wuhan. Although none of the South African’s are known to have contracted COVID-19, they will be quarantined for 21 days.