By Kyle Hulett
Within the first days of January, the hashtag #WWIII was trending – a foreboding tone for the new decade, amid polarising politics, devastating wildfires and growing wealth divides. With SAA going into business rescue, load shedding crippling business (again) and more political shenanigans afoot, the economic state at home wasn’t much better either. Despite the shaky start, Sygnia’s Head of Asset Allocation Kyle Hulett reckons things are looking up for South Africa’s economy in 2020. Here’s why…
1. Moody’s downgrade (mostly) priced in
SA bonds are looking fairly priced. This may seem strange, given the fact that Moody’s is most likely to downgrade South Africa’s credit outlook to “junk” after the medium term budget policy is announced, and a junk status means that South Africa would be excluded from the World Government Bond Index and lead to forced selling.
In general, we feel South African bonds, with the highest real yield in the investable universe – across developed and emerging markets – have priced in the Moody’s risk.
If the February 2020 budget speech can achieve a budget that converges, the expected amount of bond issuance will fall, which could support SA Bonds even if there is a downgrade.
2. Lots of room for rates to be cut
South Africa’s real rates (interest rates less inflation) – in both the cash and bond markets – are among the highest in the world. The Monetary Policy Committee (MPC) finally took the decision to cut rates at the January meeting and the MPC forecasts another rate cut later this year.
Lower rates will stimulate the local property market, and encourage companies to invest.
3. New Eskom chief to keep on the lights
Andre de Ruyter started his new job as CEO of Eskom on 6 January, leaving his post at the packaging company, Nampak Ltd. at the urgent request from government. With the recent board changes, de Ruyter has the scope to implement the necessary changes; including sourcing cheaper coal and increase planned plant maintenance.
If de Ruyter can at least stabilise the load shedding process to avoid anything beyond Stage 2, and make these electricity interruptions predictable and manageable, corporates will be able to better plan and run their businesses, bringing back investment and much needed growth in GDP and jobs.
4. Precious metal prices will support growth
In dollars, prices for gold increased 18% in 2019, along with the prices for platinum (up 21%) and palladium (up 54%). These increases mean significant profits for the South Africa economy, in the form of salaries, bonuses, tax revenue, share prices and, most importantly, job creation.
The US dollar is likely to weaken in 2020, and a weak dollar will help further bolster precious metal prices, which will support growth in South Africa.
In addition, China cut its reserve ratio requirements again in January (the lowest level in a decade), pushing Chinese growth back into expansion mode as the world’s biggest commodity user. This will help keep commodity prices supported.
5. Tito’s growth plan and Cyril’s investment drive look promising
Last year, the National Treasury released a document entitled, “Economic Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa.” The paper outlines detailed structural reforms that will lead to stronger growth in South Africa, including those in the telecommunications, agriculture, services, and transport industries.
While Finance Minister Tito Titus Mboweni had to apologise for releasing the document in August without first discussing it internally, by October 2019 President Cyril Ramaphosa had given support to Mboweni’s growth plan.
Meanwhile, Ramaphosa has secured commitments of more than R363 billion in new investments at the South African Investment Conference (November 2019), higher than the R301 billion secured the previous year and an effort that’s likely to help deliver much needed growth and jobs.
6. South Africa’s gender gap in primary school completion has shrunk
This year marks 25 years since a global Conference on Women in Beijing that called for gender equality and the removal of barriers to women’s empowerment.
In South Africa, we’ve seen the numbers of girls who complete primary school rise in the past year – a promising indicator for better future development outcomes.
At Sygnia, we believe education is key to breaking the poverty cycle for women in South Africa and, as the only female-headed fin-tech firm in Africa, we’re obviously committed to empowering women and boosting financial literacy.
As our CEO Magda Wierzycka points out: “Education can do wonders for your self-confidence and your financial well-being, and being financially independent matters a lot in today’s world of uncertainty.”
And there you have it: six good reasons to be somewhat cheerful about the year ahead. Make no mistake, it’s going to be another tough one, but at least there’s hope on the horizon.