Manner of Naidoo’s exit ‘left investors jittery’
SA’s largest asset manager, Ninety One, says the communication around the resignation of Kuben Naidoo as deputy governor of the SA Reserve Bank and as a member of the monetary policy committee (MPC) was badly handled, causing jitters in the investor community.
“We have received quite a lot of questions from our clients on this over the past few months. The way to summarise it is as follows: we are not worried, the [Bank] is an exceptionally credible central bank and its decision making will be unchanged. We do not think monetary policy is going to skip a beat,” Peter Kent, the co-head of SA & Africa fixed income, said in a webinar held by the company on Wednesday.
“But in a country where there are a lot of headlines and volatility and a lot of speed bumps, ultimately the communication and the pace of this change could have probably been a lot quicker.”
Business Day reported last week that Naidoo left the Bank at the beginning of December to begin his “gardening leave”.
His resignation first came to light at the tail end of October.
Isaah Mhlanga, chief economist and head of research at RMB, said this week’s MPC meeting will face questions about the appointment of Naidoo’s replacement given that he is now in his cooling-off period and no longer participating in MPC meetings.
“It is more likely that we will have a four-member MPC — the governor, two deputies and the governor’s adviser — at this week’s meeting,” Mhlanga said.
Economists broadly agree that the Bank will keep interest rates unchanged when the MPC announces its decision on Thursday at the conclusion of its first meeting of the year.
Kent expects the Bank to start the cutting cycle later in the year, forecasting the repo rate will end 2024 in the range of 7% to 7.5%, from the current 8.25%.
Kent also highlighted the effect geopolitics and load-shedding had on the bond market in 2023, particularly in the second quarter when US ambassador Reuben Brigety made allegations that SA supplied weapons to Russia for its war against
Ukraine via the Lady R, which docked in Simon’s Town.
Kent said: “I have been back in SA now for over a decade. I would honestly say that was the worst quarter I have ever experienced since I have been back.
“We started the quarter with reports of a potential grid collapse. Then we had Lady R and the accusations that we were providing weapons to the Russians.
“The market started then to price in a material probability of sanctions. So, in the midst of April and May the bond market was down about 6%.
“It was a dreadful period as a South African and as a bond investor. As the rumours of what happened regarding Russian weapons dissipated, the bond market recovered a little bit in June.”
With SA heading to the polls this year, market players locally and internationally are keeping a close eye on the country ahead of what is expected to be the most hotly contested elections since 1994.
Polls indicate that support for the ANC, which has been in power for 30 years, is waning.
“Our base case is that the ANC is going to drop below 50% and they will probably coalesce with some of the smaller parties and as a result we will have more of the same. There are obviously risk factors.
“If they [the ANC] lose a lot and all the adults in the room get around a table and realise what’s best for SA is a coalition with the DA and all the centrist parties … that will be a fantastic outcome, [but] I will believe it when I see it,” Kent said.
“The negative risk is for the ANC to coalesce with the EFF for example. The economic policy will shift quite radically to the left. The moral of the story is that the base case scenario is more of the same.”
Ninety One, which has about R3-trillion in assets under management, also reflected on the underperformance of freight rail company Transnet, whose operational and financial challenges have curtailed exports.
“Transnet is probably the biggest own goal I have ever seen by the government. The good news there is that the government is aware of what is going on and the private sector is involved. But that could be a burden for the Treasury and we all know what [Transnet’s underperformance] does to exports,” Kent said.
The money manager expects Sanral to make a positive contribution to growth in 2024.
“Sanral has just issued a whole bunch of tenders, 28 tenders for big road construction and infrastructure construction, which is fantastic. We are a debt holder across the business and we will be engaged with Sanral to make sure the tender processes are all above water.”