Volume 18 Issue 10 – November 2020 

The US Presidential election is a few days away at the time of writing. It is going to be a closely fought contest that may end up being challenged, particularly if President Trump does not get re-elected. Democratic nominee and former Vice-President, Joe Biden is leading the race in a number of polls but the margin between the two candidates is narrowing. Trump was similarly behind Democratic candidate, Hilary Clinton, in 2016 and won the election in spite of losing the popular vote. It is quite conceivable that there could be a repeat of that in outcome in this 2020 election. Both candidates are doing their final campaigning in the key swing states where the outcome of the election could be determined. The sad reality of this election is that whichever candidate wins, it is not likely to bring about any meaningful or positive changes to the current situation. The USA budget deficit has risen significantly as a result of the Covid pandemic. The federal debt has risen significantly as well and is at levels that cannot be sustainable. Both candidates are talking about more fiscal stimulus being needed as the US economy is showing signs of slowing down as the wage stimulus packages come to an end. Unemployment remains at very high levels and until there is a real and sustainable improvement in the economy that is not going to change. The economy had a significant improvement in the third quarter but the comparison to the second quarter is very misleading as that is when the economy had its biggest contraction since the second world war and any recovery would look good against that. There is still a long way to go to get back to the pre-Covid growth levels.

The recovery of the US economy and a number of other major economies is being threatened by a significant resurgence in the Covid pandemic. The USA has just experienced its highest daily infection rate and concerns are being raised about the capacity of its health care system to cope if there is a flood of hospital admissions. Ireland, the UK, France, and Germany are all going back into some form of lockdown as a result of a significant resurgence in the Covid-19 infection rate. Some of the lockdowns are quite stringent and this is going to have an impact on the economies of the affected countries. The reality is that the virus is not going away any time soon and as yet there is no sign of an effective vaccine. While South Africa has coped remarkably well in terms of its recovery rate, we just have to hope that we do not get a resurgence as is happening in other parts of the world. The South African economy cannot afford the cost of another lockdown and yet sadly it seems that many in the country are now returning to life as it was before and are not observing the protocols that will help reduce the spread. Part of the South African success in dealing with the virus has been a high rate of compliance with mask wearing, social distancing and hand sanitising. We must hope that those habits are retained so that we do not get a second wave resurgence. Markets around the world have reacted negatively to the resurgence and having had a weak August, have had a generally weaker September. The tech heavy Nasdaq index led the US markets down and was 9.4% down for the month with the Dow Jones and S&P 500 down 4.6% and 2.8% respectively. The European markets were all weaker with the German Dax down 9.4%, the UK FTSE 100 down 4.9% and the French CAC 40 down 4,35%. The South African market also declined and was down 6.83% with all sectors weakening but particularly the Resource sector, given the fears about a slowdown in the global recovery. The oil price also fell and is now below USD 40 per barrel and gold fell to below USD 1900. The Rand had a very strong month and at one stage was trading at below R16.20 to the USD. It finished the month at R16.24 per USD.

The performance of the Rand is quite surprising given that the medium-term budget presentation by finance minister Tito Mboweni was a particularly negative one. Tax collection is significantly down which is not surprising given the economic impact of the Covid Pandemic. Government spending has increased as a result of the crisis and government debt is increasing. There is no option but to look at ways of cutting back on government spending and particularly the public sector wage bill. That is going to be a particularly challenging political thing to do given that the government’s trade union alliance partners are already voicing opposition to any such moves. It was very disappointing that money is being reallocated to enable SAA to get through the business rescue process it is in. It should have been shut down rather than wasting more of the precious state resources on it. We have been told it is not a bail out but is money that is being spent so that it can be partially sold off to a private operator with the state retaining a significant share in whatever the new entity is. It would have been better to let private airline operators fill the gap left by SAA if it were closed down. There is so much excess capacity in the global airline industry that it would have happened quickly, and the state would not be carrying any further financial burdens. Eskom released its results and its debt burden and the failure of municipalities to pay for electricity means that
some form of restructuring of its debt will be required as it is not a viable entity in its current form. Progress is being made in fixing Eskom which is vital for any form of economic recovery.

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