TWINOAKS INVESTMENT MANAGEMENT (PTY) LTD
Volume 17 Issue 3 – April 2019
“I have not failed. I’ve just found 10, 000 ways that won’t work” – Thomas A. Edison
COMMENT AND OUTLOOK – A Ratings Deferment
Moody’s Investor Services did South Africa a big favour by deciding not to review the country’s current investment grade credit rating. This means the prospect of a downgrade to a sub-investment grade credit rating has been deferred. Moody’s is the only credit rating agency that still has South Africa’s credit rating at investment grade albeit it the lowest level. A downgrade to sub-investment grade or junk status as it is known, will have negative impacts on the country and its investment markets, particularly the bond market. Moody’s has said that they will review their rating of South Africa in November this year. This gives the ANC government 6 months to demonstrate that they have taken the necessary steps and actions to set South Africa back on a path of sustainable growth and proper governance. It is a very fair and reasonable approach by Moody’s and the ANC government will only have themselves to blame if they do not use this opportunity to prove that the country is in fact on a path that will result in better growth and governance, in the future. It is just over a month until the national and provincial elections, the outcomes of which will be critical for the future of the country.
“The JSE has also had an improved first quarter and was marginally higher in March.
International equity markets did well in March and have had a very good first quarter of the year after the really bad last quarter of 2018. Ironically this comes at a time when there are considerable concerns being expressed about a slowdown in global economic growth and particularly in the USA. A key driver of sentiment in the US markets has been the guidance by the US Federal Reserve that there will not be any further interest rate increases over the next few months. This is a significant change from the position they had previously adopted which was one of continuing interest rate increases. The JSE has also had an improved first quarter and was marginally higher in March. The move has been driven largely by the resource shares with some of the larger Rand hedge industrial stocks also contributing to the market move. The broader market and particularly some of the financial stocks were actually weaker over the period. The oil price has continued to move higher on OPEC production cut backs and is currently USD 70 per barrel. The Rand weakened quite a bit during March going to R15 to the USD for a brief while. It has since strengthened to R14.20 to the USD. South Africans have experienced another significant fuel price hike as the fiscal year tax increases on fuel kicked in. Britain did not meet its Brexit deal deadline of 29 March and has an extension until 12 April to reach agreement on the terms of its EU departure.
“It does seem as if President Ramaphosa is slowly gaining control of the ANC.
In SA the electioneering by the participating political parties is well underway and the level of political rhetoric is picking up. There are quite a few smaller parties contesting the elections but the focus will be on the ANC, the DA and the EFF being the 3 biggest parties. It really is about how much support these 3 will gain or lose. The ANC is a very internally conflicted entity with the ongoing battle for ultimate control in the party between the Ramaphosa camp and the Zuma aligned supporters. The latter group appear to be doing all they can to retain influence and prevent ANC party and country president, Ramaphosa, from making the changes that have to be made to enable the re-establishment of a functioning state after the years of damage inflicted on it during the Zuma years. It does seem as if President Ramaphosa is slowly gaining control of the ANC but he is up against some determined people, not the least of whom is party Secretary-General, Ace Magashule, a firm Zuma supporter and apparently a significant beneficiary of that corruption riddled era. If the recent allegations against Magashule about the extent of his involvement in corrupt activity are found to be accurate, it could be a tipping point in the battle for the soul of the ANC. As things stand at the moment it does seem as if the ANC will remain the majority party nationally but possibly with a drop in support. An outcome of 55% to 58% support is likely with 60% being a good result. What the Ramaphosa detractors in the party don’t seem to appreciate is the level of support he personally brings to the ANC and the difference that will make in the election. The EFF is trying position itself as a possible coalition deal maker and it will grow its support to between 8% and 10% with anything above that being a surprisingly good outcome for them. The DA will do well to retain its support at between 20% and 24%. Anything above that will be an excellent outcome for the party and below 20% will be a real setback. In the provincial elections Gauteng is going to be closely contested with the possibility of the ANC losing its majority there.
“Eskom and its problems continue to dominate sentiment . .
Globally and locally we can expect volatility to continue to impact on market sentiment. There are many challenges facing global economies but there are some bright spots. Things have improved in China and the market has risen quite sharply this year. Germany did not go into recession but growth in Europe remains slow. Locally, Eskom and its problems continue to dominate sentiment and impact on the economy but steps are being taken to improve the situation and it looks as if the worst of the load shedding is behind us. We also have a new and competent SARS commissioner which is another positive step.
Twinoaks Investment Management (Pty) Ltd (Twinoaks) is a FSB approved Discretionary Financial Service Provider – No 849. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Twinoaks has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. For any further information concerning this publication, please contact Twinoaks.