What Zuma’s fall could mean for investors

Steven Schultz

This long-overdue leadership transition within the ANC has been met by not only public relief, but similarly by investor euphoria. Evidence of how quickly sentiment has changed can be sighted in the rand’s impressive gain of 9.5% from R13.59 to R12.30 versus the US dollar since the December 2017 announcement.

With the buzz beginning to fade, many investors will now be asking themselves whether this overnight shift in market sentiment is indeed warranted.

While it is certainly true that South Africa’s dismal growth rate will take years to rebound, investor and business confidence – both of which have been all but decimated over the past few years due to business-government infighting and perpetual political scandals – is capable of rebounding almost instantaneously. The reality, as highlighted by international ratings agencies, is that self-inflicted political missteps, the fostering of distrust among the private sector and the widespread perception of corruption has significantly eroded investor confidence.

This has resulted in a growth rate well below that which is required to absorb the overwhelming 27.7% of citizens who are currently unsuccessful in their on-going search for employment.

Suppressed economic growth, rising unemployment, an unsustainable tax revenue shortfall and an on-going fixed investment recession by the domestic private sector has proven effective at deterring foreign investment and undermining the recommendations of global ratings agencies.

Considering market commentators’ uniformly positive responses towards Cyril Ramapho- sa’s recent victory, it’s tempting to conclude this development reflects much needed progress for citizens and investors alike.

The only group less enthusiastic would perhaps be retired savers who are reliant on inflation-inspired interest rate increases. Investing for an income will surely prove challenging in the months ahead.

Steven Schultz is head of Investment Marketing at Momentum Investments.