It would be satisfying to end the year on a positive note, as was the case last year when the S&P 500 and the FTSE/JSE gained 26.9% and 24.1%, as measured in dollars and rand, respectively.
Unfortunately, this will not be the case for 2022.
On the global front, this year draws to a close with most asset classes and currencies having been buffeted by soaring inflation and jumbo rate hikes. There was some respite in South Africa this week though, with South African investors and businesses heaving a sigh of relief following President Cyril Ramaphosa’s clear victory at the ANC Elective Conference. The rand strengthened immediately following the news that incumbent had defeated his rival, Dr Zweli Mkhize, meaning that Ramaphosa will, for now, remain president of the ANC and South Africa.
Ramaphosa won around 57% of the votes from the roughly 4,400 voting delegates in attendance. Most of the other members of the ANC’s top seven (expanded from the top six with the addition of an extra deputy secretary-general post) are aligned with his faction. Yet several of the positions were closely contested, reminding us that Ramaphosa’s power base in the ANC is far from unassailable.
It is also worth noting that the top seven still includes members of the radical economic transformation (RET) faction. Nomvula Mokonyane, one of the deputy secretaries-general, for example, was recommended for prosecution for corruption by the State Capture Inquiry. The National Working Committee and National Executive Committee are filled with people tainted by similar allegations.
We are hopeful but remain cynical about the prospects of a real new dawn following the false dawn of Ramaphosa’s first presidential term. The balance of forces in the ANC means that President Ramaphosa’s scope for decisive action on the party’s endemic culture of corruption and much-needed policy reforms may be as limited as it was in his first term.
One weathervane to watch is the inevitable cabinet reshuffle. Just how far Ramaphosa goes to accommodate the RET faction will show how secure he is in his power base. He may need to offer ministerial posts to the likes of Mkhize for the sake of party unity. As commentators have noted, it is an indictment of the ANC that Mkhize won more than 40% of the votes, despite the Digital Vibes scandal.
The bottom line is that Ramaphosa’s re-election means that we can, at least in the meantime, expect continuity in economic policy. However, this does not in itself present a compelling case for investment in South Africa. Unless, and until, government has a clear vision in tackling the Eskom crisis, cleaning up corruption, implementing business-friendly reforms, and drastically improving service delivery, our economy will continue to decline rather than grow at its required rate.
“You cant go back and change the beginning, but you can start where you are and change the ending”
– C.S.Lewis, British writer
Global News
- The Fed’s predictions of higher inflation last week Friday baffled economists and market analysts, who expected it to continue coming down. The Federal Bank expects that core inflation — which excludes food and energy — will end this year around 4.8%, up from the 4.5% figure forecast in September.
- After the Fed’s news, US stocks dropped for a fourth session, as the S&P 500 closed at its lowest level in more than a month, dragged by declines in big-tech firms including Apple, Microsoft, and Amazon.com. This month’s index decline contrasts with an average 1.5% December gain since 1950.
- There has been little cheer in global financial markets this year. Russia’s war in Ukraine, persistent inflation, rising interest rates and fears of a recession shifted the landscape, with the S&P down nearly 20% year-to-date and the Nasdaq slumping more than 30%. Bitcoin has fared even worse, plunging more than 60%.
- Australia’s sovereign wealth fund is positioning for inflationary pressures to persist around the world, betting that gold and other commodities will offset crimped returns across asset classes as it seeks to offset pressure from inflation.
- Meanwhile, the world is holding its breath as China ditches its zero-tolerance Covid policy, and the World Bank has trimmed growth forecasts on uncertainty as to how this policy removal will help the economy grow. A surge in infections has held back oil prices.
- The UK’s National Health Service is starting to look sicker than some of its patients. After limping through the Covid-19 pandemic, the National Health Service is finding the aftermath even more challenging as hospital waiting lists are growing, pharmacies are running out of antibiotics, nurses have gone on strike for the first time ever, and ambulance drivers are expected to join them.
- Ukrainian president Volodymyr Zelensky chanced a journey to Washington to meet with President Joe Biden and addressed a joint session of Congress to rally support for his country’s war effort. The US will continue to support Zelensky for as long as it takes. The war is likely to be protracted.
- Wells Fargo is set to pay $3.7 billion over consumer banking violations, a deal that includes the largest fine ever imposed by the Consumer Financial Protection Bureau and allows the bank to resolve claims that it had harmed millions of consumers since 2011.
- Apple stock this year has lost nearly $800 billion, or about a fourth of its market value, yet continues to outperform rivals. Despite clouds hanging over its head, such as scrutiny in Europe for its Apple Store practices, it returned $454 billion to shareholders over the past five years.
- Elon Musk will step down as head of Twitter as soon as a successor is found, he said in a tweet. This comes after about 58% of the 17.5 million votes cast by users were in favour of Musk stepping back from the leadership role.
- As at Thursday’s close the S&P 500 was 0.12% up for the week.
Local News
- Ramaphosa was re-elected to his position as leader of the party on Monday, leading to talk that he would shuffle the cabinet – showing that he can indeed be ruthless – while others state that he will turn his focus on the 2024 elections and address the afflictions that are crippling the country. His slate won five of the top seven positions.
- Financial Mail columnist, Justice Malala, argues that the president still faces challenges on the Phala Phala debacle, which means former Gauteng premier, Paul Mashatile, not currently an MP, would be next in line for the presidency should Ramaphosa be ousted or benched. Several state agencies are still looking into the Phala Phala matter.
- The national elective conference closed on Tuesday with promises of better healthcare, schools, and infrastructure, indicating that the ANC’s policy direction remained the same. Ramaphosa, in his address after being re-elected to run the ruling party, also included pledges to fight corruption, taking a strong anti-corruption stance on this societal ill. Further details will emerge on 5 January in the lead up to the ANC’s 8 January statement.
- However, Fitch Solutions has indicated that economic and social challenges will continue to weigh on local consumer confidence in 2023 as it continues to hold a “negative view” for the consumer outlook in South Africa.
- Ahead of André de Ruyter stepping down as Eskom CEO due to political interference, he spoke of a sophisticated bugging device that was found in his car, reports of power stations being sabotaged and receiving death threats. The search for a competent CEO who can stabilise the operational efficiency of the utility and steer it in the right strategic direction, while still being assured of the unwavering backing of the political economy, will be a great challenge. We expect losses to mount for this state-owned enterprise in 2023.
- Woolworths has sold department store David Jones to Australian private equity fund Anchorage Capital Partners for an undisclosed sum. This refocuses the SA upmarket retail group as it will no longer be carrying that liability. Its investment in the Australian company did not turn out as expected.
- As at the time of writing, the rand was 2.2% stronger for the week and the ALSI was 0.18% down.
Sources: Dynasty, Daily Maverick, BusinessLIVE, Financial Mail, Bloomberg, M&G. News24, Reuters, New York Times, etc.
