Well, that was some year, packed with ups and downs but ending on a strong note thanks to the election of Cyril Ramaphosa as boss of the ANC. The markets responded favourably to the sense of political optimism, with the rand, property and bonds strengthening and the JSE steady in December, confirming equities as the best performing asset class in 2017.
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.