2016 – South Africa: better than expected

Spring time is here:

After the provincial elections showing the Democracy is alive and kicking;

Rand strengthening and hovering around R14 to the US Dollar;

and GDP growth of 3.3%  quarter on quarter it feels indeed more sunny than a few months ago.

If Pravin can keep his job, downgrade can be avoided and the rain start to fall we might see the dams (glass) as half full again.

 

Also see below article of Director of Investec Asset Management: Jeremy Gardner.

2016 – South Africa: better than expected 2016 has indeed proven to be an interesting and surprising year. Perhaps the biggest surprise of all is – after a tumultuous start – how relatively calm South Africa has been. Economically, 2016 has been boring and predictable. The Americans are growing, albeit less than expected, as in fact is most of the world. China, despite remarkably gloomy predictions by Messrs Roubini and Soros, appears also to be growing reasonably, around 6.5% as predicted by the Chinese government. The headlines for 2016 have, however, been driven by two particular themes: terrorism and politics. Whilst Iraq and Syria in particular are almost weekly the victims of significant terror attacks, the Western world is starting to come to terms with the grim reality that, since the introduction of the ‘lone wolf attacker’, not only are incidents on the increase, but they are increasingly impossible to prevent. From the airport attacks on Brussels and Istanbul, to a nightclub in Orlando; from a promenade in Nice, where the French experienced their third attack in 18 months, to Germany, where they recently experienced four violent attacks in one week, the world is a much more dangerous place. I was in London on the day the Brexit vote was announced. To say the mood in the City was one of disbelief would be a gross understatement. And what is perhaps one of the most amazing aspects of the Brexit decision is just how totally wrong financial markets called it. One can understand why: All four leaders of the political parties advised ‘remain’, and still, the majority voted to exit. That the referendum should never have happened, David Cameron now realises. Throwing an economic question to an emotional audience was always going to carry risk, and Cameron, after expediently promising a referendum in exchange for extra votes to get re-elected in the last election, paid the ultimate price. The impact on the UK is negative, but is difficult to quantify. Slowing growth, a decline in investment, rising unemployment, falling tax revenues and a rising debt to GDP ratio, all – as predicted by The Economist intelligence unit – seem a certainty.

I was in London on the day the Brexit vote was announced. To say the mood in the City was one of disbelief would be a gross understatement. And what is perhaps one of the most amazing aspects of the Brexit decision is just how totally wrong financial markets called it. One can understand why: All four leaders of the political parties advised ‘remain’, and still, the majority voted to exit. That the referendum should never have happened, David Cameron now realises. Throwing an economic question to an emotional audience was always going to carry risk, and Cameron, after expediently promising a referendum in exchange for extra votes to get re-elected in the last election, paid the ultimate price. The impact on the UK is negative, but is difficult to quantify. Slowing growth, a decline in investment, rising unemployment, falling tax revenues and a rising debt to GDP ratio, all – as predicted by The Economist intelligence unit – seem a certainty.

 

However, a lot will depend on attitude and confidence, negotiating the best divorce settlement possible, and then focusing on opening up other markets, such as India, China and Australia. Nothing will change fast. Much will hinge on corporate decision-making over the next five years. But the Brits, if indeed the Kingdom remains United, are plucky by nature, and not to be underestimated. They’re often at their best when up against the wall and may still, in the long term, turn this into a positive. Already Angela Merkel is sounding more conciliatory towards Britain, and together with Theresa May, we may find a far more benign settlement than was initially expected. This move may have temporarily dethroned its ‘Master of the Universe’ status, but London will remain one of the world’s great cities and finance capitals. VIEWPOINT Winter 2016 | Taking Stock 03 VIEWPOINT What perhaps puts everything into perspective is that if we’d been told in January that by mid-year, either South Africa or Britain would have suffered a ratings downgrade, a leadership change, and a 15% fall in the currency, very few would have predicted Britain. And that’s not all folks. As several commentators have said, the US may still hold the Trump card to top 2016 political madness. However, just because South Africa has become relatively peaceful over the past three months and the rand has strengthened from an extremely oversold position, we must not be lulled into a false sense of security. We still have significant challenges to overcome. Pravin Gordhan and his team miraculously avoided one downgrade bullet, but with stalling growth, we’re going to need a Herculean effort from everybody – government, business and labour; in fact South Africa as a whole – to see us clear December’s hurdle, and then maybe, unlike last year, we can enjoy happy holidays.

 

 

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