The last two weeks have been quite a roller-coaster for Southern Africa. We saw the non-coup/coup in Zimbabwe rise and succeed in peacefully removing Robert Mugabe, South Africa lost their bid for the 2023 Rugby World Cup, and there have been shifts in the right direction in terms of our own captured structures.
Dynasty Update – Unpacking 2017 JSE Returns
The ALSI is up 23% year-to-date, but this provides a false sense of security regarding equity returns in what is a very tough local economic environment. The fact is that, to the end of October, Naspers’ 71.5% 2017 return represented 73% of the ALSI’s 19.6% return. That means that, excluding Naspers, the rest of the market was only up 5.3% year-to-date. Furthermore, this number includes a very strong performance from Richemont – another heavy-weight index component. Despite pulling back more than 8% from its recent high earlier this week, Naspers has gained a net 8.6% since the end of October, thus skewing the return concentration even further. What this tells us is that local SA Inc shares are generally performing very poorly and that it’s largely the global rand-hedge companies that are lifting the market. Without the contributions of these global companies, 2017’s underperformance of the ALSI against both developed and emerging markets would be even more pronounced.
- Robert Mugabe has resigned as President of Zimbabwe after his Cabinet had initiated an impeachment process against him. He will be succeeded by his former deputy, Emmerson Mnangagwa.
- Although Robert Mugabe’s departure from office should be viewed as broadly positive, it is prudent to be cautious in our celebrations. Mnangagwa, comes to power after being Mugabe’s right-hand man, supporting him through his presidency, being responsible for multiple atrocities in his own right. Whatever the outcome, he has a lot of work ahead of him.
- President Donald Trump’s Tax Plan has been approved by the House of Representatives. The vote still has to go through Senate. There is discontent among Democrats that the Republicans are linking the tax plan to repealing Obamacare.
- Forty Torie members said that they would be prepared to sign a motion of no confidence against UK Prime Minister Theresa May.
- UK Brexit Secretary Davis, refused to give a figure that the UK would pay to Europe as a divorce settlement. This is adding to the concern that Brexit negotiations are stalling once again.
- The rand has had yet another volatile week, going from R14.43 against the US dollar on Wednesday, 15 November, to R13.92 this morning, Friday, 24 November.
- The JSE’s sectoral performance is very mixed with plenty of losers. The Mid-Cap Index is still -10.1% from its record high last year, trading at early 2015 levels, while the JSE Small-Cap Index is also -10.1% from its record high (earlier this year) and trading at levels last seen almost three years ago.
- The rating agencies will reveal today whether we will receive further downgrades or whether they will wait for the results of the ANC Elective Conference in December and the 2018 Budget Speech in February. Based on escalating debt levels, under-budget revenue collection and mismanaged State-Owned Enterprises as outlined in the Medium-Term Budget Policy Statement, one could argue that immediate further downgrades are fully justified.
- A new national police officer, Lieutenant-General Khehla Sitole, has been appointed. Little is known about him, but his appointment has been received positively as he is the first career policeman to take on this role in quite some time.
- Northern Johannesburg suburbs should have water restored after Johannesburg Water conducted their biggest repair operation ever. A mainline pipe had burst 35 metres beneath a landfill in Linbro Park.
- Eskom reported that their cash reserves for November were R1.2 billion versus the target of R20.0 billion and this would move to a deficit of R5.0 billion by the end of January.
- Lynne Brown has been through a 6-hour interrogation regarding the state capture of Eskom. For further analysis, follow this link.