Volume 18 Issue 8 – September 2020 

COMMENT AND OUTLOOK – A Turning Point?
There is a possibility that President Ramaphosa might just have asserted control over the ANC party that he leads. If that is the case, then it could mean that the country may see a reversal of the decline that has been experienced over the past few years. The importance of this recent move is that instead of putting party unity first, the interests of the country will in fact take precedence over internal ANC party political factionalism. As was recently pointed out by political commentator J P Landman, there is in fact quite a bit of progress that has been made in recreating capacity in the functioning of the state. The damage done to the key institutions during the Zuma era was significant and this is being rectified. Whilst there has been little
movement in terms of getting those involved in state looting to court, the capacity to do so has been significantly improved. The Hawks are under competent leadership again and it seems that the disbandment of the Scorpions investigative and prosecutions unit may be reversed in some form. SARS is now under competent leadership and while tax collections will be down as a result of the Covid related economic slump, the skills and capability that SARS lost are being reinstated. Transnet is under new leadership and will hopefully become the key enabler for economic activity that it is supposed to be. Eskom is struggling to provide a consistent supply of electricity but the new leadership there is at least open and honest about the problems it is facing. There is also a sense that at last there are longer term solutions being put in place which will ensure stable electricity supply in the future. Eskom is critical to an economic revival in the country so it must get fixed and it seems that may be happening. What is also required is for the corruption and plundering of state resources to be stopped and it seems there is at last the political will to do that. It will take some time to see the results of this shift but hopefully it has now started.

The extent of the economic downturn caused by the Covid related shutdown of the economy is now being felt in South Africa. Sadly, there is a widespread loss of jobs and a recovery is going to take time. Some of the major banks have reported interim results recently and the significant provisions they have made for bad debts is an indicator of the damage that has been caused. The fact that there has been a relaxation of the alcohol and tobacco bans is going to help both the fiscus and the economy. In addition, the hospitality industry has now been opened up and it is just international travel that remains closed. Tourism and international tourism in particular, is such an important part of the SA economy that hopefully it will not be too long before those restrictions are lifted as well. The spread of the Coronavirus appears to have peaked in South Africa and while there is much concern about under reporting of cases and deaths, it seems that the worst outcomes have been avoided. The virus is however not going away anytime soon. As international experience has shown, resurgences can be expected.

Markets around the world and particularly in the USA, were strong in August. The Dow Jones has now reached break even for the year to date with the S&P 500 and the Nasdaq both positive for the year to date. In other parts of the world, in spite of a strong month, markets are still quite significantly negative for the year to date with the UK down 20% year to date, the German market down 2% and France down 17%. The Japanese market is still down 2% for the year, and Hong Kong down 10% but the Chinese market is positive. The economic outcomes in most countries remain very weak and Australia has reported its first economic contraction in 29 years. Economic activity in Europe has also dropped to its lowest level in many years. In South Africa we are likely to see the biggest decline in economic activity on record when 2nd quarter GDP is released. The JSE had a muted August and remains in negative territory for the year to date. The oil price has stabilised at around USD 45 per barrel and the gold price has retreated from its recent highs but remains up around 30% for the year to date. This is being driven by a combination of concerns about US Dollar weakness and the prospect of rising inflation in the USA. The US Federal Reserve has said that wants to see inflation at an average level of 2% while it is currently close to zero. They have also said they will continue with their zero interest rate policies. No further stimulus packages have been announced by the US Congress, which is what the markets are anticipating will happen. There is a very direct correlation between the amount of stimulus and liquidity that has been provided by US authorities, and the level of economic activity in the USA. The challenge is to normalise this so that the economy can function on its own without central bank intervention. That will probably not happen for a long time and markets must just hope that the policy decision-makers do not make any major mistakes or misjudgements as the consequences could be severe.

The USA presidential primaries are now finalised, and it will be the incumbent Republican President Trump facing off against the Democratic party nominee, being former Vice President Joe Biden. The polls, which can be very unreliable, have Biden in front by a small margin. It is too early to assess which candidate will win the election, but neither is a particularly appealing prospect as leader of what is currently the world’s biggest economy. Trump will probably prevail, but we shall see.

Twinoaks Investment Management (Pty) Ltd (Twinoaks) is an 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