Volume 18 Issue 9 – October 2020 

COMMENT AND OUTLOOK – Trumped by The Virus The Covid-19 Coronavirus has had its most high-profile infection victim in the form of US President, Donald Trump. Most of what Trump has done or said about the virus has been controversial. The USA was a late mover, earlier this year, in taking steps to mitigate against the spread of the virus and to provide medical capacity for the treatment of infected US citizens. The result is that the USA currently has had the highest number of infections in the world and sadly, the highest number of deaths. The timing of President Trump’s Covid infection has caused alarm with the USA presidential elections less than a month away. It seems that he has not been too severely affected and the closely run US elections will not be affected. Democratic nominee, Joe Biden, is currently leading by a quite a wide margin in the polls but that can change quite quickly. A substantial number of mail-in ballots have already been cast and indications are it could be one of the highest voter turnouts in a
presidential election in many years. Trump does have an advantage in that his support base is in parts of the US where the electoral college system could work in his favour as it did in 2016. The first debate between the presidential candidates was an insight into this election. It was chaotic and inspired no confidence in either candidate. It will be a very close outcome with Trump likely to prevail because of the US electoral college system.

In Europe there has been a resurgence of Coronavirus infections and a number of countries are taking steps to impose lockdowns or restriction of activity in order to curb the spread. This is not good for economic activity but is confirmation that the virus is not going away any time soon. In South Africa, the much- awaited move to lockdown level 1 took place in mid- September. This allows for virtually full economic activity which is much needed. The rate of infections in the country has slowed considerably and the recovery rate of infected people is one of the highest in the world. Sadly, the economic impact has been disastrous. The GDP contraction in the second quarter was the biggest on record and unemployment numbers have jumped significantly to the point that South Africa now has one of the highest unemployment rates in the world. The second quarter was the period during which the hard lockdown was in force so there will be a third quarter rebound but it is going to take time to get real economic growth going. Government finances are in a very poor state and concerns are increasing about the level of government debt. At the same time the trade unions are threatening strike activity. One of the issues they raise is that government has not adhered to the 2018 wage agreements and they want the 2020 wage increases that have been put on hold. No public servants have lost their jobs or endured salary cuts during the crisis, as has been the case in the private sector. Public sector wages have tripled in the period 2007 to 2019 and have gone from R154 billion to R518 billion. This is the single biggest cause of the current poor state of public finances. The bulk of the increase in public sector wages took place during the fiscal recklessness of the Zuma administration. Someone should point this out to disgruntled public servants because that has not been the case in the private sector.September was a negative month for most equity markets around the world. The US markets all dropped with the Nasdaq falling the most at 5.7% but still being significantly up for the year to date. The S&P 500 is positive for the year to date, but the Dow Jones is still negative. The Japanese market was flat for the month and is slightly negative for the year to date.

There has been a change of Prime Minister in Japan with long serving PM Abe stepping down for health reasons. No significant policy changes are expected. Hong Kong and the Chinese markets were down for the month and Hong Kong remains significantly down for the year to date with China 5.5% positive year to date. All European markets were slightly down in September, but France and the UK remain significantly down for the year to date with Germany slightly down for the year. Commodity prices dropped in September but are considerably up for the year. Oil fell by nearly 10% on the back of weak demand. Markets are waiting for signs of further stimulus, particularly from the US government, as that is what is driving them. The SA equity market was also down in September and is 5% negative for the year to date. Financial shares had a positive month but are still down 35% for the year to date. SA interest rates were unchanged, and inflation is at 3.1% annualised. That is at the bottom of the Reserve Bank’s target range of 3%-6%.

Further cuts in interest rates are not likely. The Rand strengthened in the first part of September to R16.55 to the USD which was its best level in 6 months. It then weakened on the back of a stronger USD to over R17 per USD and has since then strengthened again to R16. 60 per USD. Some very positive news for the country but maybe not for some ANC politicians, public servants, and their business associates, is that arrests for corruption in some high-profile cases have taken place. This is a start to bringing to justice those
who have looted the state finances with impunity. It is also a sign that the capacity of the NPA has improved as these charges would not have been brought without certainty of success. The first VBS Bank fraud and corruption conviction is also a win.

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