SA needs “two twos” — two years of 2% economic growth — to get long-term value investors to pay attention, and 2025 will be the first of those two years, says a senior JPMorgan analyst.
JPMorgan senior equity strategist David Aserkoff was speaking to SA cabinet ministers and UK and SA business people at the London Stock Exchange after deputy president Paul Mashatile rang the opening bell at the bourse as part of a roadshow led by Mashatile and several cabinet ministers.
The cabinet delegation, which includes five ministers and four deputy ministers, is the largest to visit the UK in some years. The ministers are due to meet their counterparts in the UK government, as well as visiting JPMorgan, Citibank, Investec and Goldman Sachs to meet corporate clients and investors.
May’s election outcome and the formation of the government of national unity (GNU) have made SA the darling of emerging markets in recent months, with the rand strengthening, bond yields down by more than 150 basis points and the MCSI index of SA equities up 23%, outperforming the emerging markets index by 13%. The general retail index is up a huge 35%.
Bankers at this week’s event in London highlighted a renewed interest in SA by multinationals and other corporate clients. Tshepo Ncube, Absa head of international client coverage, said this marked a new era for SA, noting that multinationals that once overlooked SA were putting more money into their businesses in the country and wanting to do more.
But one investment banker said that while local equity market investors had bought into the GNU story and were persuaded by the 188 days without load-shedding, “we haven’t really seen international investors pull the lever on SA, we haven’t seen the long-term value investors come in”.
Aserkoff said that few industrialists outside SA seemed to know load-shedding had ended. SA just needed to keep going to re-establish its credibility.
SA is now just 3% of the MSCI global emerging markets index, and has fallen off the radar screens for many international investors over the past seven or eight years of very low growth.
But Goldman Sachs started to see some things going right with the economy and public finances even before the GNU. The 2022 electricity reforms helped load-shedding to abate. The GNU shifted the balance of risks to growth. Goldman Sachs estimates the economy’s potential growth rate is now 2%-2.5% and there is a high chance actual growth will get there in the next couple of years.
Under finance minister Enoch Godongwana and his predecessor Tito Mboweni government fiscal policy had shifted from raising taxes to cutting spending.
Goldman Sachs now estimates the primary fiscal surplus will reach nearly 1% this year and 1.5% for the next two years, which should stabilise public debt and lead to positive ratings actions, possibly within the next six months.
Still in honeymoon phase, the GNU is one risk to a bullish outlook, with the experience of other countries suggesting coalitions can be unstable.
Goldman Sachs’ Andrew Matheny said the main risk was from outside SA. A Donald Trump victory and a Republican sweep in November’s election could see a loosening of US fiscal policy coupled with blanket tariffs, which would probably be inflationary and negative for emerging market growth and capital flows.
But Aserkoff pointed to the upside risk that a Trump presidency could drive global oil prices down to the $50-$40 range and to China’s recently announced fiscal and growth boosting reforms, which could drive demand for commodities.
The Federal Reserve’s recent rate cut is already reflected in higher metal and precious metals prices, which has a direct effect on SA’s terms of trade and helped to strengthen the rand. Goldman Sachs’ models suggest fair value for the rand could be as strong as R14-R12/$.
Panellists said SA had to avoid further foreign policy missteps such as the Lady R debacle if it wanted to keep international investors onside.
Speaking at the LSE, international relations & co-operation minister Ronald Lamola said the government’s statement of intent emphasised South-South and South-North co-operation. He said this week’s meetings in London followed a visit to the US last week where they “engaged with the levers of power”.
The SA cabinet delegation is scheduled to meet UK deputy prime minister Angela Rayner and foreign secretary David Lammy, as well as secretary of state for business and trade Jonathan Reynolds and secretary of state for energy security and net zero Ed Miliband. There are also bilateral meetings scheduled between SA and the UK treasury.
Ncube told Business Day that Absa was seeing clients injecting more capital and expanding their businesses, in addition to exploring acquisition opportunities. “Most of them that I’ve spoken to have asked to meet our M&A teams to see what pipeline there is,” she said.
This was a contrast to before the GNU when many global corporates “didn’t care about SA any more” and were looking at countries such as Mozambique, Zambia or Kenya instead.
They were still worried the about potential for SA political instability. Many questions from corporates were about how the GNU was doing. But the end of load-shedding and quick processing of visa applications were encouraging signals, she said.
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