Over the past few weeks there have been many developments regarding the health of South Africa’s economy, centering around whether there will be a downgrade to junk status in March 2020. Currently, this seems like the most likely scenario, and for this reason, Dynasty is maintaining its investment strategy of protecting our clients’ portfolios from this risk.
Global News
- It would seem that Boris Johnson is heading towards a landslide win on 12 December 2019. The margin that is predicted would allow him to ratify the Brexit deal before the 31 January deadline and give him significant leverage in negotiating trade guidelines with the European Union.
- China has promised to retaliate after President Trump announced his approval of a bill put together to protect human rights in Hong Kong amidst the ongoing protests taking place there.
- Michael Bloomberg announced that he will be running for US president in 2020. He is the richest person ever to run for president and he is wielding it — he spent at least $30 million for a single week of TV ads — that is more than his Democratic rivals spent on TV ads this year, combined.
- President Trump’s impeachment hearing report will be released early in December. This was announced by the House of Representatives Intelligence Committee head Adam Schiff.
Local News
- President Ramaphosa has pulled out of his annual Power FM interview the “Chairman’s Conversation” due to the allegations that the station’s owner, Given Mkhari, assaulted his wife. This comes as South Africa starts its annual 16 Days of No Violence Against Women and Children campaign.
- Cosatu’s spokesman Sizwe Pamla has said that Cosatu is open to the privatisation of non-strategic State-Owned Enterprises (SOE’s) as long as it is not Eskom.
- Surprisingly, Eskom announced that it made an operating profit of R1.3 billion over the last six months, due to higher tariffs. Although this sounds promising Eskom is anticipated to make a loss of R20 billion over the full financial year ending March 2020. Bloomberg has reported that the government’s R138 billion bailouts over the next three years will unlikely be enough to ensure Eskom’s viability, hinting that continued bailouts would be necessary.
- In Eskom’s fight to eradicate corruption, it is subjecting 2000 more staff to lifestyle audits. This comes after more than 400 executives and senior management were subjected to lifestyle audits over the past year.
- The South African Reserve Bank announced that SA’s finances will most likely get worse due to higher government debt, weak economic growth, and the collection of less tax revenue than expected, which has only been exacerbated by the struggling state-owned companies. The Reserve Bank laid out the details in its Financial Stability Review report.
- The recent SAA strike has caused much reputational damage with many bookings with the airline being cancelled. This deterioration in top-line revenue, combined with high finance costs and operational inefficiencies, are likely to create the perfect storm for this embattled SOE.
- For these fundamental reasons, we remain very concerned over the health and stability of the rand and the investment opportunity set in SA. We have mitigated this risk to a meaningful extent in our domestic portfolios, whilst recommending the prudent externalising of clients’ funds at the current exchange rate of around R14.75/USD.
