The rand was surprisingly strong this week, gaining 2.3% against the dollar. What is unusual is that it achieved this in the midst of a stronger dollar and slightly softer global equity markets. Ordinarily global risk-on sentiment leads to a weaker dollar, rising global equity markets, and stronger emerging market currencies. At the moment, the local currency is bucking the trend, which we feel presents an opportunity to transfer funds into foreign currency without paying a premium.
US markets, while very slightly softer for the week, remain incredibly stable, which may have much to do with the fact that they see it likely that Jerome Powell will come in for another term at the helm of the US Federal Reserve. This comes as the central bank prepares to pull back its emergency-level support, according to investors, even as some chide the Fed chief for policies they say have pumped excessive liquidity into markets.
Wall Street is widely expecting that Powell, who was nominated for the role by President Donald Trump in 2017, will be renominated by President Joe Biden for another four-year stint. His current term, which runs out in February 2022, has proven positive for risk assets, with the S&P gaining 71% since his appointment on 5 February 2018, and hitting a series of new records, in part, helped by emergency measures the Fed launched in response to the coronavirus pandemic.
Local markets, however, have not been so lucky, with the JSE lagging significantly when the value of listed stocks is converted to dollars, gaining only 11% over the same period. This is also supportive of our continued bias to offshore equity.
“When circumstances defy order, order should bend or break: anomalies and uncertainty give validity to architecture.”
– Robert Venturi
- Brett Stephens, writing for The New York Times, said this September 11, a diminished president will preside over a diminished nation. “We are a country that could not keep a demagogue from the White House; could not stop an insurrectionist mob from storming the Capitol; could not win (or at least avoid losing) a war against a morally and technologically retrograde enemy; cannot conquer a disease for which there are safe and effective vaccines; and cannot bring itself to trust the government, the news media, the scientific establishment, the police or any other institution meant to operate for the common good.” Read more here.
- On the subject of vaccines, Israel is now one of the world’s pandemic hot spots despite once being a front-runner in the global race to move on from Covid-19. It was predicted to be the first to vaccinate its entire population, but Israel’s world-beating inoculation rate has tumbled down the league table. According to figures compiled by Johns Hopkins University, Israel had the highest per-capita caseload anywhere in the week to 4 September. It’s no longer just about whether people get coronavirus, but also how badly they get it which is crucial in evaluating the efficacy of vaccine programmes.
- El Salvador’s historic adoption of bitcoin as legal tender on Tuesday was beset by teething problems as an angry protest by mistrusting citizens, technological glitches, and a dip in the cryptocurrency clouded the rollout. This bold experiment got off to a bumpy start as the bitcoin app was not immediately available. This comes as bitcoin plunged amid El Salvador’s rocky implementation of a law that makes the cryptocurrency legal tender. Bitcoin is currently trading at around R650,000.
- In company news, Naspers unit Prosus has taken part in a R1.1 billion funding round for a small Bangladesh commerce platform. This is part of Naspers’ aim to bet on start-up companies it deems to have long-term growth potential. ShopUp is a start-up that is digitising neighbourhood stores in Bangladesh.
- Prosus’ acquisition of India’s BillDesk helps consolidate its place as a global financial services player, adding another piece to its overall plan to grow its lending business and become a digital bank.
- This move by the Naspers unit comes as companies in China are disinvesting overseas assets worth $10.5 billion so far this year, the second-highest total since 1998, according to data compiled by Bloomberg. At the current pace, 2021 could surpass last year’s $15 billion sum. Chinese companies are now being more selective and are looking to dispose of holdings in areas such as waste treatment, with state-backed Beijing Capital Group and Beijing Enterprises Holdings considering sales of their overseas holdings. China Tianying in June agreed to sell its Spanish waste management company Urbaser for $1.8 billion.
- In other tech-driven news, Culdesac Tempe in Phoenix, Arizona, is billed as the first and only zero-driving community built from scratch in the US. Its future residents are contractually forbidden from parking a vehicle within a quarter-mile radius of the site. They’ll have to rely on other modes, including a bundle of discounted mobility services provided for in their monthly rent, according to project leaders. The $170 million residential development will feature a plaza with scooter docks, car-share parking, and ride-hail pickup zones, with a light rail station across the street. When the first units open in July 2022, residents are set to receive complimentary access to a Lyft Pink subscription, preferred pricing for a fleet of Bird scooters, an Envoy car share membership, and free unlimited passes on the Valley Metro transit system.
- According to Kevin Lings, measuring the size of the economy and the rate at which it is growing is a complex but vital exercise, providing policy authorities, businesses, households and investors with critical information to make informed decisions. Stats SA has re-based South Africa’s GDP upwards by approximately 11%. Based largely on the rerating, combined with improved tax collections, suggests that government debt could effectively be 72%, as opposed to the forecasts of well in excess of 80%. While this is positive news, the trajectory of GDP growth and GDP per capita is much more crucial than the absolute level of GDP.
- South African business confidence slumped in the third quarter as deadly riots, looting and arson disrupted supply chains and restricted economic activity. Rand Merchant Bank and Stellenbosch University’s Bureau for Economic Research have issued their latest quarterly business confidence index, which showed a drop to 43 from 50 in the three months through June. The median of four economists’ estimates in a Bloomberg survey was 49. The decline was attributed to the recent riots, which shuttered many businesses and caused billions of rands in damage.
- Meanwhile, South African Reserve Bank Governor, Lesetja Kganyago, has stated that South Africa can keep benchmark interest rates low by shifting its inflation-targeting framework to a reduced, single-point target from the current 3% to 6% range. A single-point target of 3% or 4%, with an error range of about one percentage point on either side, would help to better anchor inflation expectations, prevent any uncertainty associated with a broad range, and boost the country’s competitiveness relative to its peers. He has suggested 3%.
- This comes as South Africa’s inflation rate fell to the lowest level in three months in July, giving the central bank more leeway to delay raising interest rates.
- Business Day Editor at Large, Carol Paton, has argued that the consequences of ANC ineptitude are hurting in the right place at last. She said it was entirely fitting that the ANC’s ability to hold on to power is now under threat due to the same inadequacies that it has inflicted on the government and the country: ineptitude of deployed staff and leaders; infighting that paralyses processes and decisions; and an inability to make the hard decisions necessary to live within its means.
- The irony of the above is uncanny as, possibly signalling a tolerance for higher deficits, President Ramaphosa said earlier this week that the ANC lekgotla had discussed further government support for people living in poverty. This is to be done possibly through the extension of the Covid-19 special relief of disaster grant, targeted food poverty-line support, or a basic income grant.
- On Sunday, the Department of Correctional Services announced Jacob Zuma had been placed on medical parole following a report it had received. AfriForum sent a lawyer’s letter to the national commissioner of correctional services, Arthur Fraser, requesting information about the decision and a copy of the medical report recommending parole. Zuma was serving a 15-month sentence in the Estcourt Correctional Centre after being found guilty of contempt of court for refusing to give evidence at the Zondo Commission. In August, Zuma was admitted to an outside hospital for routine tests.
- Fraser has admitted that he alone decided to grant medical parole to his old boss, Zuma, which allowed him to get out of jail after “serving” just two months of a 15-month jail sentence for contempt of court. Conspicuously, the medical parole board, which is meant to advise on this, did not recommend Zuma get parole, since they found him in a “stable condition”. Fraser overruled that decision. And this could be why the ANC’s trust levels are falling. Fraser, incidentally, is believed to be a long-time ally of Zuma, allegedly giving the former president’s legal team secret recordings in 2009 that helped to have prosecutions against him dismissed.
- If people are to get infected during the inevitable Covid-19 fourth wave in the coming months, they had better be fully vaccinated, says epidemiologist and infectious diseases specialist, Professor Salim Abdool Karim. He stresses that being fully vaccinated will put people in a better position during the imminent fourth wave, which is estimated to take place around November and December.
- In company news, South Africa’s largest retailer, Shoprite, has announced a record dividend after a robust set of annual results and a reduction in debt. This has delivered a huge windfall for its biggest shareholder and former chair, Christo Wiese, who lost billions in 2017 when global retailer Steinhoff’s share price collapsed in the wake of South Africa’s largest fraud. Wiese voted to accept a settlement from Steinhoff on Thursday, which will pay him considerably less than he lost.
- Imperial Logistics, the subject of a R12.7 billion buyout from Dubai-based DP World, has pegged February 2022 as the date the deal will proceed, two months later than initially planned. If the deal is concluded, it will be among the biggest South African takeovers since Pepsico’s R26 billion acquisition of Pioneer Foods in 2020. Drinks maker Distell is in the middle of negotiations that could see it taken over by top European brewer Heineken.
- Both Metropolitan and Sanlam have reported massive claims due to the coronavirus pandemic, with Sanlam indicating it may require people applying for long-term insurance to disclose more in terms of comorbidities than is currently the case.
Sources: Dynasty, BusinessLive, News24, Bloomberg, New York Times, Reuters, NDTV etc.