This quarter has seen the South African Johannesburg Stock Exchange recover despite the continued local political turbulence. During this period, we have not only seen the Rand Hedge stocks benefit from recent rand weakness, but also some of our favourite South African stocks recovering to good levels in spite of a persisting low growth environment.
The political arena in South Africa becomes more pressurized daily with the run up to the ANC elective conference to be held during the course of December. We have seen a focus on character assassinations both within the ANC’s highest echelon as well as across other political parties. The frenzied focus of the media on our political issues continues to sow division within all the parties and along racial lines. The status quo is likely to remain for the foreseeable future as the Presidency race between the pro Zuma and anti Zuma camps heat up. This disruption, as well as the recent comments from our new Finance Minister, Minister Gigaba, to use profitable State owned entities to prop up debt ridden, non-performing State-owned entities i.e. using Telkom invested funds to bail out Eskom and SAA should be viewed with a great deal of concern. It is surprising that the rating agencies have not been more aggressive in their downgrades of our sovereign ratings, although we have been placed on the “watch list” by all of the agencies.
The Rand, despite the above headwinds, has retained some relative strength, propped up mainly by foreign yield seekers who are prepared to take on risk in order to achieve some income returns as the interest rates in developed markets are close to all-time lows.
On the international front, the attempted implementation of tax cuts by the Trump Administration has resulted in muted returns over the quarter and, in some instances, particularly in the “tech sector”, we have seen weakness after a tremendous run up in the value of their indices. Theresa May’s continued political blunderings, has significantly weakened her position and it remains to be seen how the roll-out of Brexit continues as Brussels has now taken a fairly hostile stance towards the United Kingdom. Although one would have expected markets to react negatively as a result of these talks, it has seen a strengthening in the pound against the dollar. Notwithstanding all of the above political concerns, markets remained fairly robust up until the end of November with both local and global earnings from companies meeting most analysts’ forecasts.
The oil price continues to remain volatile, although a recent recovery has buoyed global oil stocks, as well as Sasol locally, one would expect further talks between OPEC to reduce output which may cause a decrease in inventory levels and as a result an increase in the oil price. Other commodities i.e. mining shares have proved to be a good investment in terms of yield and most resource backed economies have performed satisfactorily during this quarter.
It is worth noting that the medium-term budget during this quarter was particularly bad for the South African saver and economy. The deficit, which is a direct result of bloated Government officialdom and bad investment decisions made by our State owned enterprises, has resulted in a significant shortfall and one would anticipate an increasing tax environment going forward.
The roll-out of Common Reporting Standards (CRS) as well as other compliance legislation is a core focus area and we will continue to provide our clients with updates as soon as we are informed of any changes.
We take this opportunity to wish all our investment family a happy, blessed and safe festive season.