Investec’s Jeremy Gardiner always offers SA pessimists a happy pill
Many years ago, the late Archie Shapiro, doyen of the JSE, told me that if you’re pessimistic and you’re wrong, you’re in trouble. However, if you’re optimistic and you’re wrong, people will forgive you. And this is how I feel about presentations from Jeremy Gardiner’s Investec Asset Management, which is due to become Ninety One next week.
His assessment of the country is always an uplifting and positive experience, even if his views are far too cheerful for my liking.
Looking back on his 2019 outlook, it is insightful to compare his expectations with what transpired. It’s somewhat chalk and cheese. He said things would be tough until May elections, and thereafter the SA economy would improve, there would be a general move out of developed into emerging markets and the US dollar would weaken. I did not see any of that materialising; developed markets and especially the US remained first-choice destination for global investors, the dollar was strong, and the SA economy showed no improvement after the elections and continued to deteriorate.
This year’s presentation from Gardiner was a bit more measured but overall still positive. Key takeaways are that the rich will keep getting noticeably richer, European growth should continue its decline, EU and UK Brexit negotiations will probably not be concluded by the end of 2020, and Donald Trump will be re-elected US president in November.
On the local front, Gardiner begins with the mess from the Zuma years that is taking far longer than originally envisaged to clean up. He also expects that, with an approval rating of a high 62%, President Cyril Ramaphosa will survive the “fightback” in the ANC and win a second term in office in 2024. “He has a rock-star rating in politics,” says Gardiner.
On the possibilities of a Moody’s Investors Service downgrade to subinvestment status later this month, Gardiner is hopeful. Going against mounting consensus, he thinks Moody’s won’t downgrade SA’s sovereign debt and at worst will delay the downgrade until November. Gardiner devoted time to several positives not widely acknowledged or appreciated. Eskom has conducted 365 lifestyle audits on selected individuals, with 44 of those cases being reported to appropriate investigative bodies, and this clampdown on corruption has been extended to looking at all staff.
Gardiner notes that new Eskom CEO André de Ruyter is getting back to basics and appears to be making a positive difference. De Ruyter is enforcing a far tighter maintenance regime and bringing talent back to the ailing utility. Even so, Eskom’s loadshedding will drain the economy, stifling growth at 0.5% to 1% this year.
National Prosecuting Authority (NPA) head Shamila Batohi has recruited 600 new prosecutors, and some highlevel actions could be seen this year. The justice department and the NPA visited Dubai with a view to extraditing the Guptas. The family evidently applied recently for new SA passports, but home affairs rejected the applications.
In terms of inward investment in SA, multinationals are often deterred by the empowerment code requirement to reallocate a portion of their equity to BEE structures. That is now changing. Gardiner highlighted, for example, how US tech giant Amazon Web Services is investing in Cape Town without having to offer equity. Multinationals unable to sell equity to empowerment partners, because their global practice or policy prohibits it, are permitted to use equity-equivalent programmes as an alternative, after approval by the department of trade & industry.
Gardiner also demonstrated the virtues of Cape Town and other SA holiday destinations in a rapidly saturating global tourism market. A shocking photograph of tourists flocking along the road to Machu Picchu shows this hotspot is overcrowded and that the attraction of other, perhaps more sedate, destinations such as Cape Town will grow.
A Gardiner presentation is prescribed viewing for jaded cynics who easily get bogged down in negative discourse about SA. His upsides may not always materialise, but it’ sa time to be transported to a place where it feels good again to be South African.
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