Some rea­sons to take heart The fore­cast for 2016 was quite bleak. Now, with the first quar­ter be­hind us, some fac­tors have ma­te­ri­alised that are bright­en­ing the out­look.

Finweek English Edition - - FUNDFOCUS - Is di­rec­tor at In­vestec As­set Man­age­ment.

jan­uary 2016 was a very de­press­ing start to the year. The US, the last re­main­ing bas­tion of growth in an oth­er­wise de­cel­er­at­ing world, was slow­ing faster than ex­pected. The de­cline of frack­ing jobs and growth, to­gether with a ram­pant riskaver­sion-driven dol­lar and a slow­ing global econ­omy, was hurt­ing its ex­ports.

That, com­bined with on­go­ing con­cerns around a Chi­nese hard land­ing, was all that skit­tish mar­kets needed to give up 10% to 20% of their value in a mat­ter of weeks.

South Africans, mean­while, who had pre­vi­ously thought they were de­pressed, were also reel­ing in the af­ter­math of the fi­nance min­is­ter switch de­ba­cle, and grad­u­ally com­ing to terms with just how de­press­ing things could ac­tu­ally get.

Need­less to say, in­vestors who in 2015 had al­ready pun­ished the rand on the back of our cur­rent ac­count deficit and our com­mod­ity econ­omy, could add dodgy do­mes­tic de­ci­sion-mak­ing to make up the hat-trick of rea­sons to sell, and the rand was ham­mered, from R14.60 in De­cem­ber to R17.78 to the US dol­lar in Jan­uary 2016.

Adding to the cock­tail of po­lit­i­cal woes was the fact that there seemed to be forces at work who had not fully un­der­stood the eco­nomic desta­bil­i­sa­tion and po­ten­tial col­lapse from events in De­cem­ber. Via cer­tain state in­sti­tu­tions, they ap­peared in­tent on pres­suris­ing the re­newed steady pair of hands on the coun­try’s fi­nan­cial con­trols into re­sign­ing.

After all that, you prob­a­bly need some good news. And the good news, very sim­ply, is that with the first quar­ter of 2016 now safely be­hind us, things feel bet­ter. Which is by no means say­ing 2016 is go­ing to be great, but we could cer­tainly take com­fort from a num­ber of de­vel­op­ments.

Firstly, US growth is go­ing to be okay. Noth­ing more. US Fed­eral Re­serve Chair Janet Yellen is dovish, sur­pris­ingly so, which means two rate hikes this year rather than four, and that should be bad news for the US dol­lar and good news for emerg­ing-mar­ket cur­ren­cies, in­clud­ing the rand.

On top of that, with the Bloomberg Com­mod­ity In­dex hav­ing reached a 25-year low, the fact that the oil price is back around $50 per bar­rel in­di­cates that there is some life out there. Com­mod­ity prices have re­sponded ac­cord­ingly, and many may even have troughed. It is amaz­ing how closely global eco­nomic sen­ti­ment and eq­uity mar­kets have fol­lowed the di­rec­tion of the oil price.

Granted, much of this is driven by ar­ti­fi­cial and un­sus­tain­able cen­tral bank eco­nomic life sup­port. How­ever, it’s bet­ter than noth­ing, and if it helps in any way to relight some eco­nomic growth flames, it’s to be wel­comed.

It’s al­ways im­por­tant to re­mem­ber, both in good but par­tic­u­larly in bad eco­nomic times, that every­thing goes in cy­cles. The world will grow again, de­mand for com­modi­ties will re­turn and with a de­mo­graphic pen­sion time bomb ap­proach­ing a yield-starved de­vel­oped world – in which in­vestors are cur­rently re­ceiv­ing no re­turn if they’re lucky and, in the case of a third of eu­ro­zone bonds, a neg­a­tive yield – emerg­ing-mar­ket yields should even­tu­ally lure in­vestors back. Al­ready, emerg­ing-mar­ket out­flows have turned flat, and in some cases flows have even been pos­i­tive.

Back home, the weaker rand is nar­row­ing our cur­rent ac­count deficit, while the fi­nance min­is­ter is nar­row­ing our bud­get deficit.

Com­mod­ity price sta­bil­i­sa­tion and a hope­fully al­ready-peaked US dol­lar are also favourable for our eq­uity mar­kets and the rand.

Po­lit­i­cally, we need to get our act to­gether, and fast. The rat­ings agency threat is real. Very real. We shouldn’t be here. We find our­selves in this po­si­tion through the un­for­tu­nate ac­tions of a few who, as the fi­nance min­is­ter puts it, “are more in­ter­ested in their per­sonal busi­ness in­ter­ests than those of the coun­try”.

The good news is that those with cor­rupt in­ten­tions are be­ing ex­posed as never be­fore, and their web of dirty deals is be­ing un­rav­elled − lit­er­ally on a daily ba­sis.

The pre­vi­ously hos­tile re­la­tion­ship be­tween govern­ment and big busi­ness has thawed and looks set to yield pos­i­tive re­sults through closer co-op­er­a­tion. The bud­get was sen­si­ble, the Con­sti­tu­tional Court rul­ing showed that not all state in­sti­tu­tions have been “cap­tured” and govern­ment is say­ing all the right things about pri­vati­sa­tion or “eq­uity part­ner­ships”, pro­mot­ing in­vest­ment, growth and jobs.

The mo­men­tum of those politi­cians look­ing to act in the in­ter­ests of our coun­try is grow­ing and will hope­fully soon over­whelm those who think oth­er­wise. It has to. The al­ter­na­tive is too ghastly to con­tem­plate. And we don’t need to change govern­ment. You can cre­ate a dream cabi­net out of the ANC – we just have to put the right peo­ple in the right po­si­tions. Al­though a few swal­lows do cer­tainly not sig­nify a sum­mer –the rand has al­ready re­tracted from R17.78 to around R15 in a mat­ter of months – both eco­nom­i­cally and po­lit­i­cally 2016 looks set to be slightly warmer than orig­i­nally fore­cast.

And the good news, very sim­ply, is that with the first quar­ter of 2016 now safely be­hind us, things feel bet­ter.

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