The removal of a technocratically sound, decent, hardworking, well respected (at home and abroad), fiscally conservative and reform-minded Finance Minister is a serious blow to (Portfolio and corporate FDI) investors for several reasons.
To market to market to buy a fat pig. We often point out that there are many things beyond your control when making investment decisions. I wrote to a client overnight: “In investing there are some things that you can control, i.e. the stocks you own, and there are many things that you cannot control, such as the levels of the currency, interest rates, government economic policies, the global geopolitical environment, and so on.” You can position yourself for how you see the future, you can do something about that. You can externalise money and invest offshore, you can do something about that. However, you cannot do anything about the levels of the Rand, who the new finance minister is, what Janet Yellen and the FOMC, or Mario Draghi and the ECB, or Lesetja Kganyago and the MPC are likely to do.
I was feeling under the weather yesterday, summer flu has descended onto our offices here, I slept like a log last evening. And not a baby, as they wake every few hours for sustenance. Sleep when your baby sleeps, they tell new mums, yeah right! As such I only saw a header early this morning about the new finance minister. Actually, it came first on the Vestact WhatsApp group, that is where stories break. Sorry, closed group. OK, so here is the reaction, first from the media, the Mail & Guardian story, an article from Matuma Letsoalo, a senior political reporter at the publication: Nhlanhla Nene removed as finance minister. Either way you look at it, it is not pretty.
This morning well respected politician and former premier of Gauteng (1999-2008), Mbhazima Shilowa, was on Power FM, and these are the tweets that came through. Of course this is associated with the interview that he gave, about the new finance minister. Remember that you must read the tweets from the bottom up, the more recent ones are later in the interview. You can decide for yourself:
And then perhaps the real sign that we are still in a robust democracy, the press statement from the EFF, this was really pushing boundaries: EFF statement on the removal of the Finance Minister. This paragraph was especially scathing: “Zuma has appointed him because he knows that Van Rooyen will not stand up to him when he wants to do wrong things. Van Rooyen will be so eternally grateful, absolutely starstruck that anything Zuma asks for will go. Van Rooyen will be prepared to even approve further upgrades to Zuma’s Nkandla home by putting a private zoo that has exotic animals like domesticated tigers.”
And then some fellow who has been really involved in South Africa as an outsider for as long as I remember there being business TV in South Africa, a chap by the name of Peter Attard Montalto, his note from overnight is simply titled, South Africa: Finance Minister removed, in listing the points, Peter leads with the following: “The removal of a technocratically sound, decent, hardworking, well respected (at home and abroad), fiscally conservative and reform-minded Finance Minister is a serious blow to (Portfolio and corporate FDI) investors for several reasons.”.
And then he lists them, the removal was possibly as everyone agrees on, political rather than performance. The fact that he clashed with the Presidency on areas of the new plane, austerity measures for the Presidency, perhaps more so the nuclear deal (too expensive for the country) and the SAA tongue lashing directed at someone who is close to the president. You can read into it what you want, either way it is not good for fiscal discipline.
The market will dictate to the finances of the economy, by the way of your exchange rate, your borrowing costs, and so on. I would say, don’t panic, wait for the dust to settle. This is clearly a negative. Make no mistake it would be better if Nene was still in charge, don’t act irrationally however. And rather act in the way that you can, i.e. act along the lines of things that you can control. Bloomberg has a pretty sobering view on it all: Zuma Takes South Africa Economy to Brink as Credit Risks Rise.
Linkfest, lap it up
Machine learning is going to become more prominent as we generate more data that needs to be processed and as we require robots to do more things. The big question that is still being asked is, “what is the best way for robots/ machines to learn?” – Now robots can learn about the world the same way babies do.
Many people have been calling a drop in share prices just due to the fact that there hasn’t been a down year since 2009. Going back in history the 80’s and 90’s were even better years for stocks than the current streak – The S&P 500 Hot Hand Fallacy. There is no doubt that the market will have a down year at some point, that doesn’t mean though that we will see the world crash around us.
What do you do when you want a Coke but you are a Soviet General and can’t be associated with a core capitalist brand? The solution is to ask Coke to make a clear coke in a bottle with a nice big red star on it – Object of Intrigue: How a Red army general inspired ‘white’ Coca-Cola.
Home again, home again, jiggety-jog. Anything with a SA inc. bias is getting blasted today, most especially if you are a financial business. FirstRand down over 7 percent, Standard Bank down over 6 percent, Barclays Africa down over 6 percent, Nedbank down 5 percent. Discovery down around 4 and three quarters of a percent. Shoprite down over three and a half percent. These numbers obviously evolve quickly, the market reacting to the news in SA inc. I have only one thing to leave you with, for those younger readers, you watch me whip (of the economic transformation cluster), you watch me Nae Nae (out of the door, or off your chair).
Sent to you by Sasha and Michael on behalf of team Vestact.
078 533 1063