SA seemingly on the ascent

Several signs indicate the environment will “align perfectly” in favour of emerging markets this year, according to Investec Asset Management director Jeremy Gardiner.

And, he added, what happens in emerging markets affects South Africa. SA seemed to have a few things going for it given the current global political turmoil – the rand, our bonds, and our stock market appear cheap.

At a recent Investec investor and asset manager event, he said that of the $31 billion net capital flows that went to emerging markets in January, the lion’s share ($16 billion) came to SA.

The elections in May would make 2019 a year of two halves: the first would be dominated by political noise and unprecedented mudslinging and the second would see decisive economic and political reforms, a smaller cabinet and some tough decisions about Eskom.

Beyond infuriating losses

Gardiner referred to research by the Bureau for Economic Research on the decade since the global financial crisis – incidentally the time former president Jacob Zuma led SA.

Had it not been for the looting and theft, the economy would have been 30% bigger and could have created 2.5 million more jobs. Tax collections could have been R1 trillion more. But things seemed to be looking up for emerging markets, including SA.

Government facing facts

Clyde Rossouw, co-head of quality at Investec Asset Management, said government had – for the first time in years – tackled the issues facing Eskom and other critical state-owned enterprises (SOEs). “The markets have priced those [issues] and are assessing those risks – and valuations are attractive.”

If all the liabilities of all the SOEs were consolidated and placed on government’s balance sheet, SA’s debt-to-GDP ratio would go up to 65%, he said. This compares to that of the US at 120% and 247% in Japan. Investors are getting a better combination of opportunities locally, he said.

Gardiner said emerging market assets looked set to outperform those of the developed world. It’s estimated emerging markets would grow at 4.5% this year and the developed world at 2.1%.

However, SA needed to see a drop in interest rates for local stocks to rally, Rossouw said.