Emerging markets’ turn will come again

AS an investment bet, emerging markets had their high season when global investors saw little to no promise of their money growing in the developed climes of either the US or Europe. This was the time of the Lula moment in Brazil, a path some in the ANC hoped their newly elected president would follow.

Of course, this was all underpinned in large part by China’s insatiable appetite for African and Latin American commodities.

As soon as it became evident that China could no longer base its growth on building highways, but had to boost domestic consumption, the lights dimmed on the emerging-market story.

When former Fed chairman Ben Bernanke called time on quantitative easing, the fundamentals of the countries within the emerging-market basket of nations came under close review.

Top of that pile then was South Africa — and, because of the liquidity of the rand and historical ties that keep the country in the global spotlight, it still is.

Under this scrutiny, the past few years have been brutal.

The pressure has played itself out the usual way, with politicians who stand to lose the most from the shifting sands being the most belligerent.

The ANC Youth League’s dismissal of any fears over a ratings downgrade sounds rather like the irritation of the highest office in the land.

The heat has certainly been on over the past few years.

The rand weakened some 37% in the two years running up to Britain’s decision to leave the EU. It was a surprise decision, whose ramifications are still unknown, that did at least move the focus from troubling politics in the former colonies to matters back at home.

Since that decision, the rand has strengthened some 6%.

Despite an improving UK economy, singled out as a sign of the Western world’s looming economic resurgence, Britons beyond London spoke of their unhappiness with the status quo.

Donald Trump’s ascension to leader of the First World on the back of frustrated and old America, despite the fact that the US economy is still on a record expansion run and reporting record low unemployment, is in line with Brexit fears. It’s inexplicable or irrational — words that are so often used to describe African or Latin American politics.

Now the positive economic spin being spun around the rise of Trump is that corporations listed on Wall Street will rise.

Goldman Sachs — that bastion of capitalism from what’s seemingly a bygone era — has seen its stock rally more than 30% since Trump’s election. Other US banking titans, such as JP Morgan, and lead players in the last global recession have also rallied.

The promises of lower taxes, less regulation and new spending on infrastructure — Reaganomics, in other words — comes with greater earnings.

But I’d argue that their better season won’t trickle down to old steel-producing backwaters such as Pittsburgh and Pennsylvania in the US, and that it will be short-lived.

Wall Street’s boom won’t belong to everyone who voted for Trump.

When investors in search of growth realise the need to look outside of an isolationist US or a desperate UK, emerging markets will once more have their season.

At that point, South Africa’s political noise should be just that, noise. Of importance is that the rules for engagement in the South African story, such as transformation, should be set, leaving little to no uncertainty over policy direction, such as our energy future.

@ronderby

Investors will need to look beyond an isolationist US or desperate UK