January 26, 2021
Market News 26 January 2021
What we know
The first few weeks of 2021 have certainly given us the more “typical” Rand trading patterns to which we’ve become accustomed. Having started the year around 14.65, we touched 14.51, moved all the way up to 15.66, back down to 14.76 and are currently at 15.32 – a proper rollercoaster! Thus far, our neutral range of 15.00 -15.50 would have stood clients in good stead.
What does make things a bit different from the usual “oh that’s just how the Rand trades” approach, is that the moves have been largely due to global drivers: the weak USD due to the rather large stimulus package, COVID developments throughout the World, fast money flows to higher yielding currency and global risk appetite in general. In other words, it has been less about the Rand, although we feel that may change in the coming weeks.
It is now widely believed that South Africa will continue to suffer new waves of infection until vaccines can be made sufficiently available for the population to achieve herd immunity – whereas those countries already rolling out the vaccine may yet have (less severe) third and perhaps fourth waves, it’s incredibly hard to see just how many waves South Africa may still face. This will of course weigh heavily on the economy alongside public finances and is the main reason we are surprised that the MPC did not in fact cut local interest rates at last week’s meeting. If not now, when? We really do need to give the economy any help we can in getting some traction and positive momentum.
The other obvious event on the horizon, is FM Tito Mboweni bringing the national budget to parliament in little more than a month’s time and seldom has a budget’s content (and credibility) been so in doubt even before it is tabled. That is, first, because of the politics of public sector pay. The trouble is that all of that has yet to be negotiated between the government and the public sector trade unions. Then we have the debt stabilisation plan and how precisely we start implementing this to any degree of success, while our finances are currently under such strain and, if anything, still deteriorating. The most recent handout to SAA has commentators feeling that, somehow, lessons simply aren’t being learnt.
While these and other issues may very well be of the government’s own making, the current difficult set of (global) circumstances are the equivalent of throwing two or three more balls into what is already an incredibly precarious juggling act. Hopefully Mr Mboweni’s hands are fast enough for the challenge! We do not envy his task and are seriously concerned about the health of his Aloe Ferox…
What others say
Daily Maverick – Here’s why a wealth tax is a stunningly poor idea for South Africa
“The most egregious thing about this fantastically unoriginal idea is that it is somehow presented as though SA’s heavily socialist government has never thought of it before. Yet, SA’s government has been imposing steadily higher taxes for decades, and doing so in the context of declining economic growth. In 2000, SA’s tax rate in relation to its GDP was 22.4%. That has risen steadily over the past two decades, and it reached 29.1% in 2018. This is more or less the same as the current OECD average. It was then that Finance Minister Pravin Gordhan imposed, you guessed it, a wealth tax.”
Bloomberg – History’s lesson for Biden: Stuff happens
“Sometimes events are beyond a new president’s control. Sometimes they are unforced errors of his own making. But presidents don’t simply make history. Often, history comes at them fast.
In the hope that it won’t get me banned from Twitter and Facebook for sedition, I am going to suggest some of the events that could plausibly blow the Biden administration off course in the coming months.”
Moneyweb – Rupert responds to Swiss Covid-19 vaccination uproar
“In his response , Rupert noted “my physician arranged it” (in reference to securing a dose of the vaccine). When asked about accusations of jumping the queue to get the vaccination, he replied: “I was not involved in the appointment – my doctor set it up.”
He added: “There were many before me… I have also been paying Swiss Health Insurance for over 30 years.”
Financial Times – Investor anxiety mounts over prospect of stock market ‘bubble’
“Some point to the explosion in trading by inexperienced amateurs as a particular concern. These investors, seen as flighty “weak hands” by professional fund managers, intolerant of losses and quick to exit bets, have been on the ascendancy as lockdown boredom encouraged them to the commission-free trading offered by start-ups like Robinhood.”
What we think
Last week we wrote that “… outside of improved global risk appetite and the still higher yields available to investors in SA, there is little fundamental about which to be positive. Furthermore, there are thoughts emerging that the relative yield differential may start to unwind in the medium-term, meaning that fast money could flow out of SA bonds just as quickly as it arrived….in the medium-term we can’t help but feel a move towards 16.00 is a distinct possibility.”
It looked for most of last week as though our assessment and range of 15.10 -15.60 was far too bearish as we moved well below that range from Tuesday all the way until Friday; however, we then sold off to test 15.15 and this morning we touched as high as 15.34.
This simply reiterates our point that at times of such uncertainty, investors should try to decide what an acceptable range of trade is for their requirements, rather than picking an exact level – you may appear to be wrong today, yet a couple of days later you could be very happy with your decision (the opposite of course may be true!). For us this “neutral” range remains 15.00 – 15.50, with a concern that a move towards the weaker end remains likely.
Our outlook for the week ahead is again 15.10 – 15.60.
Have a great week!