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Investment views

South Africa’s Cabinet balancing act

4 June 2019
Author: Nazmeera MoolaHead of SA Investments

Nazmeera Moola discusses last week’s cabinet announcement from South African President Cyril Ramaphosa, following national government elections on the 8th of May. Interview recorded on 30 May 2019.


Lindsay Williams: Let’s have a look at President Cyril Ramaphosa’s new Cabinet through the eyes of the market and market participants. With me is Nazmeera Moola, who is the Head of Investments at Investec Asset Management in Cape Town. Nazmeera, your initial thoughts please?

Nazmeera Moola: Hi Lindsay. I think, in general, it was a reasonably good Cabinet. I don’t think it was an A-plus Cabinet but it certainly was a B, B-plus sort of push.

Lindsay Williams: Did he have any other choices though? Were there any other candidates that you would have said I would have put that person in that position instead of the person that he chose?

Nazmeera Moola: I think that was his great difficulty, was this balancing act between the people available and the political imperatives he needed to satisfy

Lindsay Williams: The markets have reacted.  At one stage yesterday the rand was let’s call it R14.90, having come from R14.40. It is currently in the low R14,60’s.  So it is very much as you said – it’s an okay reaction. If it was a brilliant A-plus Cabinet that had been appointed, it would be back at R14.40 and maybe even stronger than that but it is not. It is right in the middle. So it is a little bit wishy-washy to me.

Nazmeera Moola: It is a bit wishy-washy but I think we have also got to be careful in attributing the full rand weakness to Cabinet uncertainty. It certainly was a contributory factor but remember we also had a huge MSCI rebalancing and South Africa’s weight in the MSCI Emerging Market Equity Index is being down-weighted at the end of May and we saw some big trades going through the market early this week as a result of that and I think that was probably a bigger reason for the rand weakness than Cabinet uncertainty.

Lindsay Williams: But you, as Head of Investments at Investec Asset Management in Cape Town, when you sit down with your team and say: alright, this is the Cabinet, this is what we think might happen, these are the implications – what will you be saying? Will it change your investment philosophy or strategy at all?

Nazmeera Moola: I think our biggest concern is that you have a budget deficit which is showing no signs of stabilising at this point in time. The April numbers have come out while we are speaking and you have a very large deficit number of R63.5 billion in April and forecasts for this year have the current year, which will end 31 March 2020, the overall budget deficit number heading towards 6% once you include the Eskom transfers. I mean that is enormous and it is ultimately unsustainable.

We need to get growth going, we need to get tax revenues picking up, we also need to control expenditure and those are very difficult political – there is a very difficult political minefield there that the President needs to tread.

Lindsay Williams: Very finally and very briefly, Nazmeera, we are going to have a GDP print coming out quite soon for Q1 and it is not going to be pretty I don’t think.

Nazmeera Moola: No, it is not going to be pretty. So what we have seen are forecasts that look like it is going to have a – well, it is certainly going to be negative; it is going to be contracting. The consensus number is minus 1.6 but there are some that see it over 2%, contraction of above 2% in Q1 of this year. So I think that is a little bit of a risk to the rand next week, is a contraction much larger than 2% I think would be very negatively received because it raises concerns around debt sustainability.

Lindsay Williams: Nazmeera, thanks very much for your analysis. Nazmeera Moola is the Head of Investments at Investec Asset Management in Cape Town.

In South Africa, Investec Asset Management is an authorised financial services provider.

Nazmeera Moola
Nazmeera Moola Head of SA Investments

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All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an adviser or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Any representation or opinion is provided for information purposes only. This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Investec Asset Management is an authorised financial services provider. Issued by Investec Asset Management, November 2018.

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