Category Archives: Market Reports

The Confidential Report – February 2018


Political

The election of Cyril Ramaphosa as head of the ANC in December signals a sea-change in South African politics. Ramaphosa is not yet in a strong position and he will have to manage the recall of Zuma extremely carefully, but it is apparent that some Zuma supporters (like speaker of the house, Baleka Mbete) have seen the writing on the wall and changed sides. The Zuma/Gupta camp will not give up easily, however, and we can expect them to fight back. They have everything to lose. Ramaphosa also has the sensitive matter of selecting Shaun Abraham’s replacement as head of the National Prosecuting Authority. This choice will be critical since ideally that person’s first function will be to finally pursue the charges against Zuma. Zuma still has some effective control of parliament and the NEC, but many of his paid supporters are now beginning to think that their salaries will be more secure by moving to the Ramaphosa camp. This shift in the direction of the political wind is best seen in the strength of the rand which ended to the year at its strongest level since July 2015 and looks set to continue strengthening. Extricating South Africa from the clutches of state capture will be a difficult and delicate process which will require all of Ramaphosa’s skill, especially considering that there is an election to be fought in 18 months’ time. Read More

The Confidential Report – December 2017


Politics

The ANC’s elective conference in December is very difficult for private investors to evaluate. The two main contenders represent either a continuation of the Zuma/Gupta administration which has proved so unsatisfactory, or a move to a new unknown in the form of Cyril Ramaphosa. It is hard to imagine any situation that could be worse than what we have now – so clearly the markets would favour Ramaphosa. But even if Ramaphosa wins, it is likely that it will take several years for the damage of the Zuma/Gupta era to be unwound. The most reliable indications are in the strength of the rand against hard currencies, like the US dollar. A sharp weakening of the rand against the dollar will be a clear indication that the situation is going to get worse and vice versa. Read More

The Confidential Report – November 2017


Economy

Mr. Gigaba’s mini-budget was worse than most people expected. It revealed a massive R51bn shortfall in tax collections – due partly to the lower-than-expected growth rate of the economy, but made far worse by the need to inject funds into state owned enterprises (SOE) and the fact that tax collections have been less effective. The worst of the SOEs by a long shot is Eskom where the government has guaranteed just over R200bn. Eskom has been racked with accusations of corruption and state capture which has made the lenders of these funds nervous. They have now insisted that the government appoint a new credible board of directors for Eskom by this month – or they will not be willing to roll over their loans. The same is being said of other SOEs like Denel, SAA, the Post Office and the Trans Caledon Tunnel Authority (which has nearly R26bn of loans guaranteed). Clearly, after a protracted period of fleecing, these SOEs are being forced to adopt a much more business-like approach. To finance the shortfall, Gigaba cannot just print the money (Mugabe-style) because he does not control the Reserve Bank. He is being forced to privatise – beginning with the sale of the government’s stake in Telkom. This is ironical because privatisation has been a very unpopular word in the ANC since it took power. But the reality of the situation is forcing them to do what should probably have been done years ago. And we can still look forward to an increase in taxes in February 2018 – probably a jump in VAT to 16% or 17%. Fitch has expressed in no uncertain terms that SA will be downgraded on 24th November – and the rand has responded accordingly. This probably puts paid to any pre-Christmas cut in interest rates. Read More

The Confidential Report – October 2017


Political

Political polls are hardly solid evidence, but the May 2017 Ipsos poll is at least interesting. It showed that ANC support had fallen to 47% from the 54% that it won in the 2016 local government elections. Clearly, much now depends on who the party selects as its next leader at its December leadership conference. Ramaphosa is probably the ANC’s best option if they wish to retain their majority in the 2019 elections and the majority of ANC members support him. However, the Zuma camp might still have sufficient influence to get Dlamini-Zuma elected, but that will almost certainly lead to the ANC losing their majority in 2019. It appears quite likely that South Africa may have a hung parliament after that election. Obviously, private investors on the JSE will be very interested in the election result, but it seems unlikely that it will have a major impact on the direction of the share market – at least in the short term. Read More