SA’s largest commercial asset manager Ninety One says the country’s energy crisis of the past two years accounted for 75% of the rand’s weakness in the period — highlighting the devastating impact of load-shedding on the economy.
Ninety One, which manages almost R3-trillion worth of assets, said in a note to clients that the local currency’s recovery this year was largely helped by the suspension of power cuts along with together with optimism in the wake of the formation of a market friendly government of national unity (GNU).
“Substantial improvements on the electricity front have helped the rand to recover. A staggering 75% of the rand’s underperformance over the past two years can be attributed to load-shedding ... the gap between the currency’s expected return and actual return widened dramatically as SA reached record-breaking levels of load-shedding in 2023. The peak of the rand’s underperformance was in May last year, but since then, the discount in the rand has steadily closed,” analysts from the firm wrote.
“With the SA election out of the way and no load-shedding since late March, the rand looks fairly valued. We expect the currency to be more stable than in the past. Improving terms of trade, softer oil prices and stronger commodity prices also support the rand,” they added.
“The favourable outlook for the rand, inflation, interest rates and growth supports our bond market. We believe the high yields on SA bonds sufficiently protect against the risks and represent good value over the medium to longer term. [Fixed] income will remain an important driver of returns, with high yields offering investors the opportunity to earn returns well ahead of inflation.”
Eskom has kept the lights on for more than four months, saving more than R16bn in diesel expenditure in the process. The power utility’s turnaround is one of the reasons S&P Global Ratings revised its outlook on SA from stable to positive.
Ninety One, which is on the verge of adding R400bn in new assets under management, also reflected on the GNU and how it will affect markets. The money manager said though are some policy disagreements among the GNU parties, they are united in driving economic growth.
“Our new system of governance has sparked competition and co-operation among ministers, which should ultimately benefit SA Inc. Some ministries now have a DA minister paired with an ANC deputy minister and vice versa. They have to co-operate to get results,” it said.
“But the GNU ministers are also in competition mode as they need to sell their party’s service delivery success to voters in the next local and national election. This situation has created some healthy competition, and like fund managers, ministers now must worry about relative performance — how are they faring relative to their peers?
Our new system of governance has sparked competition and co-operation among ministers, which should ultimately benefit SA Inc.
“Some ministers are already hogging the limelight. For example, home affairs minister Leon Schreiber is spearheading visa reforms to boost growth while trade & industry minister Parks Tau is forging a closer relationship with business, focusing on policy reforms that will help to attract investments into the economy.”
Schreiber and Tau, who belong to the DA and ANC, respectively, have emerged as market favourites since their appointments to the key departments in June.
Schreiber in October gazetted far-reaching reforms of SA’s visa regime that will have implications for the economy, tourism, foreign investment and the procurement of much-needed skills.
The business community has taken a liking to Tau largely for his hands-on approach. Last week, the former mayor of Johannesburg took an unprecedented step in supporting Vodacom and Remgro’s fibre merger. His department filed notice of its intention appeal against the Competition Tribunal’s decision to block the transaction, once the authority discloses its reasons for doing so.
The tribunal decision endorsed a recommendation by the Competition Commission, which reports to Tau.
Ninety One said while SA growth had been limp, cooling inflation — now well within the midpoint of the Reserve Banks 3%-6% target band — and interest rate cuts would boost consumer and business sentiment.
“SA is now aligned with the global economic cycle for the first time in many years, which bodes well for local assets. Against this backdrop, we anticipate economic growth of 1.7% next year.”
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