Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
On My Mind
– A tale of two leaders
Former CEO of Sanlam Private Wealth
Apr 09, 2018
The synchronised economic recovery across geographic regions that resulted in global markets returning 23% in 2017 faced a series of significant hiccups in the first quarter of this year. With the scores of most major indices down since January, global equities in general experienced their first quarterly drop in two years. One of the main culprits has been the tech sector, with privacy scandals sending Facebook into decline and threats by Trump against Amazon causing that company’s stocks to plummet.
Despite emerging market stocks performing better than those of the developed world in the first quarter, our own market performance has been nothing to gloat over. The JSE All Share Index (ALSI) is down 7.8% year-to-date, thanks in no small part to an uninspiring contribution by rand hedge stalwart Naspers, which has lost 16.49% since January.
The biggest current risk to global market stability is the escalating trade tension between the world’s two largest economies. The game of brinkmanship between Trump and his Chinese counterpart, Xi Jinping, with the two leaders slapping tariffs on each other’s exports, is sending jitters through global markets – including our own.
Trump is of the opinion that ‘trade wars are good, and easy to win’ (his own tweet). Most market watchers agree, however, that there’s never been a full-scale trade war in history that hasn’t had unintended negative consequences. A recent article by The Economist Intelligence Unit points out that in a trade-war scenario between the US and China, the costs will be steep – particularly for US consumers, who will bear the brunt in the form of inflation. As Xi himself has said, it’s a lose-lose situation.
Interestingly, we may not only be witnessing the start of a global trade war, but also the re-emergence of a Cold War between the West, led by the UK, and Russia. There’s been a distinct chill in relations between Russian President Vladimir Putin and his western counterparts after the expulsion of than 100 Russian diplomats from several western countries accusing Moscow of being behind the poisoning of a former Russian spy and his daughter in the UK.
While Trump doesn’t appear hell-bent on making new friends, our own new president is proving his commitment to greater co-operation between South Africa and other African nations to boost our economy. Although Ramaphosa didn’t sign the agreement by 44 African states at the African Union’s Extraordinary Summit on the African Continental Free Trade Area (AfCFTA) in Kigali in March, he did sign the declaration on the establishment of the free trade area, committing to put his name to the actual agreement, pending the necessary approvals from Parliament.
In fact, Ramaphosa stated at the event that the trade deal is ‘what Nelson Mandela wanted to see realised. It’s truly a new dawn for Africa’. In contrast, the other non-signatory to the agreement, Nigeria, skipped the summit at the last minute, ostensibly bowing to pressure from trade unions in that country.
The continental free trade agreement is not without its detractors within our own borders, with some arguing that it may lead to immigration of more people from poorer countries. Most economists seem to agree, however, that greater intra-African trade has the potential to transform our economy. It will be especially good for the export of manufactured goods, which will translate to increased job creation. Importantly, rating agency Moody’s has stated that a successful African free trade area could improve the region’s credit profile.
On that note, in the same week as the Kigali summit, Moody’s affirmed South Africa’s investment-grade sovereign credit rating – one notch above junk – and lifted its outlook from negative to stable. This was a welcome reprieve, since a downgrade would have resulted in South Africa being excluded from Citi’s World Government Bond Index, potentially leading to outflows of around R100 billion.
The rating agency said in a media statement that the ‘previous weakening of South Africa’s institutions will gradually reverse under a more transparent and predictable policy framework… [which] will gradually support a corresponding recovery in its economy’.
South Africa’s new administration would face significant hurdles, however, with Moody’s further stating that ‘the political, policy and practical challenges of meeting diverse economic, social and fiscal objectives cannot be underestimated. Failure, at least [as] perceived by investors…, could lead to a further cycle of eroding economic, fiscal and institutional strength’.
We couldn’t agree more. Moody’s decision was a sensible one, but the structural shortcomings of our economy and the obvious fiscal risks remain a stark reminder that Ramaphosa’s promises of a ‘new dawn’ now need to be accompanied by meaningful action if we want to turn around our struggling economy.
Where does all this leave risk-weary investors? During and in the wake of the Zuma regime, South African shares were sold off significantly, in many cases undeservedly. In our view, the prospects for the average South African-listed counter are certainly rosier than investors would appear to believe. In fact, we’re of the view that from a low base, many now offer decent medium-term prospects.
This is in contrast with the global picture – in the international arena markedly increased volatility has prompted fears that the second longest bull run in equities since World War II may be coming to an end. We’re currently in an advanced stage of the economic cycle, and it remains to be seen how resilient markets can remain in the face of policy errors, such as aggressive monetary policy or ill-considered trade wars. When the cycle starts tiring, it’s highly susceptible to shocks, which Trump seems intent on providing.
I’d like to conclude by contrasting Trump and Ramaphosa: the former the leader of the world’s largest economy, the latter heading up an African economic powerhouse. Two leaders, two vastly different approaches. Both are successful businessmen – perhaps questionable in the case of Trump – but that’s just about the only parallel to be drawn. Whereas one is, well, completely unpredictable, the other is expected to usher in a new era of stability. While one is determined to pursue protectionist policies, the other is seemingly committed to free trade. The words and deeds of one are giving rise to global investor anxiety. The other is so far giving investors hope. Now we just need to translate this positive story into action to get our economy moving again.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
THROUGH THE CYCLE
Senior Investment Analyst
PROSPECTS STILL POSITIVE
TIME TO REDUCE RISK?
Director of Investments
FISCAL WOES PROMPT BOLD PLAN
Investment Economist at Sanlam Investments
MTN: A COMPELLING
Senior Investment Analyst
HOW MUCH RISK SHOULD YOU TAKE?
Director of Investments
WHAT CAN WE EXPECT?
Investment Economist at Sanlam Investments
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.