Internationally, there have been Brexit ball games and the ambiguous possibility of Catalonian independence. Locally, there are concerns over Gigaba’s interim budget allocations to State Owned Enterprises. We also outline below, the Dynasty house-view on the positioning of our domestic portfolios ahead of the ANC Elective Conference in December.
Global News
- No deciding factors have come from the Brexit negotiations, rather just ball talk. Theresa May made a statement on Monday, 9 October 2017, saying that the “ball is in their court,“ only to have, Margaritis Schinas, the Commission’s chief spokesperson reply “this is not exactly a ball game.” Against Brexit uncertainties, the Dynasty Investment Committee continues to view the dollar as our offshore currency of choice.
- The Spanish government has given the Catalonian leadership eight days to confirm their bid of independence after regional Catalonian President, Carles Puigdemont, declared symbolic independence from Spain on Tuesday, 10 October 2017, only to subsequently suspend the initiative and call for negotiations with the Madrid government.
- In the US, in the aftermath of Hurricane Irma and Harvey, vehicle sales received a boost, gaining 16% month-on-month in September.
- US non-farm payrolls dropped by 33 000 for September, when expectations were for them to increase by 90 000. This is the first drop in payrolls since September 2010. US unemployment then strangely came in better than expected at 4.2% in September, which was lower than the 4.4% figure in August. With the US at close to full employment, it will be interesting to see if inflation will come through, or if technology will help reduce price increases – putting less pressure on the Fed to raise rates. The recent talk of further rate hikes is what caused the dollar to reverse its recent losses and resulted in depreciation, in line with other emerging market currencies.rand
- Japan’s third-largest steelmaker, Kobe Steel Ltd, has declined by 22% following allegations that the company falsified data relating to the strength and durability of its metal products.
Local News
- The Dynasty Wealth Accumulator Fund and the more conservative Wealth Preserver Fund have gained 14.2% and 9.4%, respectively, year-to-date.
- On, 25 October, Finance Minister Malusi Gigaba, will deliver his Medium Term Budget Policy Statement. There is uncertainty regarding whether Treasury will extend the SABC’s R3bn loan guarantee. Recently, Treasury was required to bail out South African Airways (SAA), who may still need further funding. Other SOE’s (State Owned Enterprises) are also likely to need extensions on their guarantees.
- Citibank has declined to loan SAA R1.8bn, meaning that Treasury will have to fund that as well as R1.2bn cash for SAA’s working capital. This comes on top of Treasury being forced to fund SAA’s previous bail out in July of R2.3bn because Standard Chartered Bank refused to roll its debt.
- The rating agencies have warned that if guarantees to SOE’s are prolonged and net debt to GDP of 60% or more remains, it would be sufficient grounds for South Africa to incur further downgrades. We see this as placing a cap on growth going forward.
- As clients are well aware, Dynasty has prepared our funds to be resilient to South Africa’s volatile economic climate. With Gigaba looking towards gaining access to PIC funds, to continue to bail out sinking SOE’s, and our economic growth dwindling, an offshore allocation needs to be maintained in order to diversify away from local risks.
- Partially as a result of rand weakness, the JSE All Share Index closed last week 3.08% higher, reaching new record highs.
- TFG (The Foschini Group) has decided to drop KPMG as their auditors. TFG is a R30bn company with brands like Markham, Foschini, Totalsports, @Home and American Swiss. The CEO, Doug Murray, stated that, “We have initiated this change in response to governance concerns raised at KPMG Inc.“
- A slight improvement in South Africa’s budget deficit for August was posted last week. National Treasury estimates the deficit to be 3.3% of GDP for this fiscal year.
Dynasty News – How to Position Domestic Portfolios for the ANC Elective Conference in December
In a recent survey amongst political analysts, a Cyril Ramaphosa victory came through as the most likely outcome. Other surveys amongst various asset managers illustrate the extent to which views shift and differ on the result – from Ramaphosa to Dlamini Zuma, or even a compromise candidate. Many of these managers are aligning their portfolios to reflect their political research. It is, therefore, logical to conclude that there will be both winning and losing strategies based on the outcome and that the effect on investment performance could, in fact, be quite binary. Perversely, a negative political result could have a positive impact on the JSE, due to its weighting to companies that derive a large portion or all of their earnings offshore. Against divergent views and uncertain outcomes, Dynasty’s philosophy is to primarily position our equity exposure neutrally to the index. In this way, we are neither likely to sharply outperform or underperform this benchmark, irrespective of the electoral consequences.Furthermore, because we see asymmetrical risk to currency movement on the downside, we have maintained a full weighting to offshore asset classes. Other recent portfolio realignments include a shortening of our SA bond duration and a reduction to SA-listed property.
