The obvious elephant in the room, at the time of writing, is the ANC elective conference. Also, in an unwelcome intrusion into the generally unsettled socio-economic environment, there is the large matter of Steinhoff. Although this review concerns November, we can happily say that Emperor funds had zero long exposure to Steinhoff, and investors in Sir John Ross have very profitably benefited from our short position in the company. I will go into a bit more detail when I discuss that fund’s performance later.
A cynical Cabinet reshuffle, more revelations of government and parastatal corruption, slowing GDP, shrinking tax receipts, ballooning debt, a jobless rate at a 14-year high … all the signs are that we are in a worsening state of the doldrums, with no particular cause for optimism. On the economic front we will have to get used to an ugly Budget deficit and higher debt-servicing costs in the years ahead -- and that’s before we even start to consider the likely prospect of a sovereign rating downgrade. The rand has responded as per expectations of increased foreign investment outflows, weakening by 4% in October against the dollar, bringing its losses over the past two months to 10%.
September was marked by a flurry of bad local news, but there were a few highlights in the gloom. Revelations about Eskom, KPMG, and the Public Investment Corporation did nothing for market confidence, yet the good side of the story is that a general mood of shareholder activism and a renewed focus on corporate governance has taken root. It is as if the previously silent majority has rediscovered a sense of social responsibility. Add to that some heartening statistics on GDP growth (following two consecutive quarters of contraction, economic activity expanded at a modest pace) plus an unchanged repo rate and there seems to be a small sniff of hope in the air.
August was a funny kind of quiet month, given the drama of local politics, the mysteries of what Donald Trump will do next, North Korea’s nuclear provocation, and the unending tragicomedy of Brexit. Despite it all, markets drifted upwards seemingly without a care in the world.
Much talk in the likes of London’s Financial Times has centred on the lack of volatility in global markets. It appears that the unending supply of “free” money supplied by first-world central banks, under the guise of quantitative easing, continues to flow into “risk” assets. There is, as yet, no signal from them that this policy of supporting investment markets will stop.
As a result, international markets in general had a steady August. The standout performer was Hong Kong’s Hang Seng index, which was up 2.3% and is by far the best international performer this year with a return of over 27%. In rand terms, the S&P500 in the US has offered little more than break-even returns.