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the lighthouse Issue 32 | July/August 2019
R E C L A I M T H E S TAT E
ACT 1
An analysis by JP Landman,
Political & Trend Analyst
“Just do something” is the cry now rising from
H E L LO ! all over SA, a plea to the President and government
These are tricky times in general to take some action to break the logjam in
for us South Africans.
which the country finds itself. Confidence is low,
Many of us feel fearful
growth sluggish and emigration high. It is useful to
and uncertain of the
country’s future, as the recapture what has been done.
bad news seems to
keep rolling in. Our way The Ramaphosa administration has set itself two tasks: to
of dealing with this is to rebuild the ethical foundations of the state and revitalise
avoid getting caught the economy. The two topics are too much to cover in
up in fearmongering
one note, so I will discuss ethical renewal in this note (Act 1)
and naysaying, to keep
informed and to read and assess economic renewal in the next one (Act 2).
opinions and reports of
the people who give us a
calmer viewpoint. We’re
just a phone call or email
away should you need
to bounce off any ideas,
concerns or decisions
with our team.
Stone Wealth Management
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Tel 031 832 4555
admin@stonewm.co.za
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Provider FSP 29494
continued on page 2
www.stonewealthmanagement.co.za | 1
Cleaning up and re-building ethics EFF and the Public Protector are fighting
a rear-guard action against SARS renewal
The country first and foremost had to
with old allegations of rogue units and
be reclaimed from the forces of state
attacks on new Commissioner Kieswetter.
capture. Ramaphosa appointed four
He is forging ahead unperturbed and can
commissions of enquiry to help with the
leave the Public Protector to the courts.
clean-up offensive. Two are still in session
(the ubiquitous Zondo Commission and At the NPA, the erstwhile top three
the Mpati Commission into the PIC) and have also departed and a woman with
two have finished their work. Between experience at the International Court in
them the four have sparked considerable The Hague has returned to SA to take up
action – a lot of which we have already the baton. The departure of the three
forgotten about. has freed the NPA from its era of Zuma
capture and it is being rebuilt. (One is
fighting her dismissal in court and two
have appealed to Parliament not to be
fired. It will be an interesting test case for
who is in charge in Parliament.)
Director Batohi took office in February.
In March, a special investigative unit to
focus on cases arising from state capture
revelations was formed. In May, Batohi
brought in well-known corruption buster
Hermione Cronjé to lead the new unit.
Like Batohi herself, Cronjé has international
Freeing critical institutions experience and returned to SA to take
It is useful to remember that both the up the role. A senior advocate from the
erstwhile number 1 and 2 in SARS, Tom Cape Town Bar, Geoff Budlender, has
Moyane and Jonas Makwakwa, are gone.
So is that embarrassing former head of
IT at SARS, Ms Makhekhe-Mokhuane,
who made such a spectacle of herself
on national television that she publicly
apologised for it. That is not all: in the last
week of July, three SARS executives were
suspended. The clean-up continues. The
2 | our expertise, your financial future
Issue 32 | July/August 2019
been appointed as strategic advisor to State, nine civil servants and a director of
this unit. Batohi has re-appointed Willie a company were arrested and charged
Hofmeyr as head of the asset forfeiture – one for interfering with the work of
unit after he was side-lined three years the Hawks. In Mpumalanga, a former
ago by the Zuma squad. I wrote in this local ANC chief whip was arrested on
newsletter in April that 2020 will be the corruption and fraud. The Hawks are
year of prosecutions and I explained why clearly at work. In Limpopo, the VBS
then. I stick with that call. report claimed the scalps of five mayors
who resigned, four more who were fired
Over at the Hawks, both the former head
and three who were suspended. In North
and acting head have been fired and
West, three mayors resigned, one was
replaced by the soft-spoken and highly
suspended and three have taken legal
regarded general Godfrey Lebeya.
advice to try and avoid dismissal. Public
His influence is showing: two captains
opinion counts – especially in the run-up
and a warrant officer from the Hawks
to an election.
were arrested for bribes. In Durban,
both the mayor and a councillor have At SAPS, a deputy-commissioner has been
been arrested by the Hawks and have fired and six officers of general or brigadier
appeared in court (with the usual tweet rank have been charged. As recent as last
from Zuma supporting the mayor and week, seven junior officers were arrested
with her supporters protesting outside the for selling confiscated goods back to
courthouse). Two senior officials from the hawkers. In a significant ruling, one of the
Durban Metro were also arrested. A mayor “untouchables”, former head of Crime
of Newcastle was arrested for an alleged Intelligence Richard Mdluli, was convicted
(political) murder; as was a former mayor in July on several charges for offences
of Endumeni for alleged conspiracy to committed twenty years ago in 1999. The
murder. Not bad for an erstwhile Zuma wheels of justice turn slowly, but they turn.
and current ANC stronghold. In the Free (As John Block, the former ANC strongman
www.stonewealthmanagement.co.za | 3
in the Northern Cape and Zuma acolyte was “rubbished” in the report... could not
also discovered – after many legal happen to a nicer person. Expect further
manoeuvres he is now serving a 15-year fallout from the Thloloe report. A Zuma-
jail sentence.) appointed chairman is still in place at the
SABC and the corporation wants a mere
The ubiquitous SOEs
R3 billion to stay afloat, but cleaning up
The SOEs are still burning cash and their has certainly taken place.
balance sheets are shocking, but on the
The PIC saga is still on-going before the
ethical front, a lot has happened.
Mpati Commission, but already a new
At Eskom, former big bosses Brian Molefe,
Anoj Singh and Matshela Koko are board is in place, the CEO is gone, and so
gone. Molefe has also been pursued by are two senior executives. A number are
Solidariteit and must now repay on suspension. In an important break with
R10 million to the Eskom pension fund. the past, cabinet reversed the practice
365 Eskom managers were subjected to of a politician chairing the board. Under
lifestyle audits, resulting in 44 cases being new chair Reuel Khoza’s experienced
referred to the Special Investigating Unit. leadership and rock-solid integrity, the
More than 1 000 disciplinary cases were PIC will, with a little help from the Mpati
instituted, and 116 employees decided to Commission, clean up properly and head
resign, including 14 senior executives. Of in a new direction.
25 employees who had “business interest At SAA, the former Zuma acolyte Dudu
in suppliers dealing with Eskom” seven Myeni is gone – in his second stint as
resigned and the rest terminated their Minister of Finance Pravin Gordhan
interests. Eskom has seen a serious clean-up. desperately tried to get rid of her.
A year after the notorious Hlaudi Now Zuma is gone, Myeni is gone, as
Motsoeneng was dismissed from the SABC, are several former senior executives.
three of his erstwhile henchmen are gone Everybody can see how the once-mighty
too. (The verbose Hlaudi failed with court have fallen. Now there is only the small
challenges to regain his job and then matter of staying afloat. At Transnet, five
went on to fail again in his election efforts executives, including the CEO, departed
to get into Parliament.) In an important and eight more are on suspension. At
self-initiated report published last week, Denel, the CEO, finance chief and chair
compiled by veteran journalist Joe are all gone. Both organisations have new
Thloloe, the broadcaster laid bare political boards. It may not be enough to save them
interference in its editorial policy. Former financially, especially Denel, but action
minister Faith Muthambi complained she has been taken against weak ethics.
4 | our expertise, your financial future
Issue 32 | July/August 2019
So What?
• Part of Ramaphoria was the belief
that the bad guys would lose. That is
certainly happening.
• People who were once untouchable
have fallen from grace for all to see.
Some have even been convicted
Cabinet already. The impunity of the Zuma
Perhaps the biggest clean up took place years is slowly being reversed.
in cabinet. Ramaphosa inherited a • The process is not over with the
cabinet of 36 ministers. There are now 28. Zondo Commission still in session and
almost weekly revelations of bad-
At most five of those can be described
guy behaviour.
as Zuma- or Magashule-supporting (and
even some of those will deny it). 40 • Getting convictions in court is very
government departments have been different from revealing things at
reduced to 35. For all the publicity that a commission. Despite that many
was given to erstwhile Zuma ministers who people have already fallen on their
were appointed chairs of parliamentary swords.
committees, the numbers speak for • Civil society organisations have
themselves. There are 36 committees helped in this clean-up and that
in Parliament. Traditionally, the Select speaks volumes for SA’s democratic
Committee on Public Finance (Scopa) activism.
has an opposition party member as chair.
That is the case again in this parliament.
Of the remaining 35 committee chairs,
In the next edition we will focus on
11 may be regarded as Zuma- or
the second priority of the Ramaphosa
Magashule-supporting people. Most of
government – economic renewal
these are ministers who were kicked out
(Act 2).
of cabinet. From a minister to a chair of
a parliamentary committee where every
move is watched by opposition parties…
and now we are asked to believe that
they are paralysing government…?
www.stonewealthmanagement.co.za | 5
TRADE WAR THE NEW NORMAL?
By Jeremy Gardiner
The IMF warned recently that the main the previous deal failed repeatedly in
risk factors to the global economy parliament, he needs a new, improved
currently are that further US-China tariffs, deal. The problem is, the Europeans told
US auto tariffs, or a no-deal Brexit – could Teresa May months ago that it’s not up for
sap confidence, investment and global renegotiation, and they’re sticking to that.
growth. It warned that these trade wars
So Boris finds himself leading a
needed to end urgently, in order to boost
government committed to a ‘no-deal’
confidence, investment and growth. exit, should the Europeans refuse to
So, therefore, your financial fate over the negotiate a new deal (which they may
next couple of years lies largely in the well do). He is up against a parliament
hands of two people, Boris Johnson and vehemently opposed to a ‘no-deal’ Brexit,
Donald Trump. and the Tories have a parliamentary
majority of one. This is very likely to result
In terms of Brexit, a no-deal exit would in decision-making paralysis, followed
be ‘an event’ in global financial markets, quite possibly by a vote of no confidence
which would scare foreign investors and and fresh UK elections. Boris will obviously
result in emerging markets, including South be hoping for a stronger mandate, but
Africa, being punished. Not to mention, anything, including a Labour/Lib Dem
coalition victory, however unlikely, is
the UK and Europe are significant trading
possible.
partners of ours, plus the UK is responsible
for approximately a third of our foreign
direct investment inflows.
Boris, however, does not have an easy
road ahead. He must do in three months
what Teresa May couldn’t achieve in
three years. Although committed to
leaving on 31 October without a deal if
necessary, Boris realises this route carries
significant risk and could be ‘bumpy’.
Ideally, he would like to reach an
agreement with the EU, but given that
6 | our expertise, your financial future
Issue 32 | July/August 2019
Brexit aside, I believe tariff wars are
something we’re going to have to get
used to, because that’s how Trump
fights. The Mexicans are safe (for now),
India is under pressure, and Europe,
particularly the automobile industry, is
next. Just as markets were enjoying a
pause in the conflict over the past month,
President Trump, completely disregarding
the ongoing efforts of his negotiators,
implemented more tariffs, by tweet.
Investors panicked – again! – and world
markets including emerging markets (and we better hold on tight because there’s
SA), suffered. a very real chance that the global
economy is going into recession.
I’ve written before that he has a strategy,
that analysts believe that he is deliberately The risk to his strategy is that the Chinese
stoking global tensions in order to get understand how much he needs a
the Chinese to stimulate more and the strong economy for re-election and may
US Federal Reserve to cut more. Then, well play hardball in order to try and
when he eventually does a deal with strike a better deal with a Democrat
the Chinese, the US economy and stock president. Also, Jerome Powell, Chair of
markets will crescendo, peaking just in the US Federal Reserve, is not yielding to
time for the US elections. The result? A
Trump’s pressure to accelerate rate cuts,
booming economy should ensure his
infuriating Trump and unsettling markets.
re-election next year. Apparently, that’s
how the US works. A strong economy I’m pretty sure his strategy is to get
equals almost certain re-election for re-elected. If that is the case, and he
an incumbent president. It seems the manages to artificially stimulate the US
economy is all that counts, all other economy (and therefore also the global
negativity is just ‘noise’. economy), the result will be a ‘risk-on’
environment which would be very positive
I’ve been told that this theory gives too
for emerging markets, including SA.
much credit to Trump, that he is irrational
and acts impulsively with little thought And my goodness, at the moment we
of the consequences. If this is the case, need every bit of help we can get.
www.stonewealthmanagement.co.za | 7
ECONOMIC & MARKET OVERVIEW
Q U A RT E R 2 , 2 0 1 9
For the period ended June 2019 The global economy is currently going
through a synchronised slowdown that
The following market review looks at
the performance over the past quarter has seen developed central banks
of local and global asset classes and pivot towards more accommodative
currencies, and puts this into perspective monetary policy. This more dovish stance
relative to longer-term performance. by developed central banks has meant
The purpose of this review is to provide that emerging markets may be able to
a context in which the performance of also cut rates. Given the limited room
the investment solutions in which you are for the conventional monetary policy,
invested can be assessed. we may yet see central banks turn more
Note: All quarterly data is quoted in aggressively toward fiscal policy, in an
US dollar terms unless otherwise stated. attempt to avoid a recession in the years
ahead. Demand for sovereign debt
International
soared, with Austria successfully placing
Global markets bounced back strongly a 100-year bond at a 1.1% yield and an
after the sell-off in May despite many of astounding $12 trillion of government debt
the market’s pressing issues remaining now negative yielding. The US yield curve
unresolved. Firstly, while the trade inverted, with 10-year yields lower than
negotiations between the US and China 3-month yields, which suggests a weaker
are back on track it will take compromise
growth outlook and commensurately
from both sides to reach an agreement.
Geopolitical risks rose after UK Prime
Minister Theresa May resigned and Brexit
hardliner Boris Johnson emerged as
Tory leadership front runner, while Iran’s
downing of a US surveillance drone,
suspected attacks on oil tankers in the
Strait of Hormuz and announcement of
uranium enrichment exceeding previously
agreed limits tested Trump’s appetite for
conflict.
8 | our expertise, your financial future
Issue 32 | July/August 2019
lower policy rates. The Reserve Bank of sectors contributed to the performance
Australia (RBA) has enacted interest rate in June, although the Financial sector
cuts in two sequential meetings for the first and the Resource sector outperformed
time in seven years. the Industrial sector by 3% and 2%
respectively. The more broadly-based
The S&P 500 Index advanced 6.9% in June,
SWIX experienced a more pedestrian
being one of the strongest rebounds seen
advance but was still up 3.1% in the
in recent times, driven mainly, by the
month and by 9.0% year-to-date. For the
change on interest rate policy from the
quarter, the ALSI had a return of 3.9% while
US Fed. For the quarter, global equities
domestic property had a return of 4.5%.
returned 3.6% in USD while global bonds
had a fairly similar return of 3.3% in USD. Bonds too enjoyed a good month with
The strengthening of the Rand resulted yields at the long end softening by about
in slightly diluted returns for South African 20bp. Real yields remain high by historical
investors. Much has been said about the standards. The Property index continues
demise of the current global equity bull to lag, being barely in positive territory
market that, by many measures, is very year-to-date. As the sector generally lags
mature. Having been in place for over a the economy, distribution growth is likely
decade, it will rank as one of the longest to disappoint for several years to come.
in history. However, the excesses that Inflation should rise at the margin in the
normally signal the end of the cycle are coming months as petrol, water and
not that apparent. But earnings have electricity prices accelerate.
already enjoyed a very strong advance
Poor consumption expenditure by
over the last number of years and are
households and increasing competition
looking like they are in top-of-cycle range.
by retailers for consumers’ wallets should
It is unlikely that earnings growth on its
constrain inflation to the midpoint of
own can sustain further equity gains.
the 3-6% inflation target, leaving further
Local scope for future rate cuts. The All Bond
Index had a return of 3.7% for the
In June the JSE All Share Index produced
quarter, outperforming domestic cash
a total return of 4.8%, having fallen by
comfortably.
4.8% in May. This brings the year-to-
date return of the ALSI to 12.2%, while Both gold and PGM’s had a strong June
the one year return still lags at 4.4% due and no doubt was a significant factor
to the particularly weak Q4 2018. All behind the good performance from the
www.stonewealthmanagement.co.za | 9
Resource sector. Equity returns could
have been even better were it not for the
currency strengthening by 3.5% against
the US$. The gold price breached the
1400 $/oz mark for the first time in six years
and the prices of the entire PGM basket
rose, possibly indicating a change in
sentiment regarding precious metals that
could signal a more sustained move.
The SA economy is currently trapped in a
cycle of low economic growth and high In May 2019, SA manufacturing
unemployment that, if not arrested soon, production declined by a disappointing
could result in a major crisis. The current -1.5%m/m, after growing by a solid
trajectory is leading to greater levels of 2.5%m/m in April 2019. The market was
poverty and inequality that increase the expecting production to decline by a
probability of economic instability. more modest -0.6%m/m. In the first quarter
Recent statistics on credit growth and of 2019, manufacturing activity recorded
retail sales suggest that the currently a substantial drop of -2.1%q/q, which
employed SA consumers are at their limits obviously hurt the Q1 2019 estimate of SA
and are unable to meaningfully take on GDP growth. At this stage, the Q2 2019
more debt. performance is likely to record positive
growth, despite the larger than expected
Spending on badly needed infrastructure
decline in May. This will help South Africa
is also declining as seen in the demise of
avoid falling back into a technical
the local construction industry. Barring an
recession. (Manufacturing activity
export-led windfall the only sustainable
comprises about 13% of the SA economy).
path to higher economic prosperity is to
The ongoing weakness in SA PMI data
increase employment, bringing in more
is a concern, since it suggests that the
people into the consumer economy.
underlying trend in SA manufacturing
Despite President Ramaphosa’s positive
remains extremely weak.
message at the State of the Nation
Address, we have yet to see decisive
action taken on critical structural reforms Source: 2IP, I-Net Bridge, BER, RMB
that are necessary to move us out of the Global Markets, Bloomberg, Stanlib Asset
low growth environment. Management
10 | our expertise, your financial futureIssue 32 | July/August 2019
MARKET OVERVIEW
Q U A RT E R 2 , 2 0 1 9
The tables below provide a review of key local and international investment indicators
for the past quarter, as well as over longer periods.
(Performance over periods to 30 June 2019)
South African Asset Classes (ZAR)
Asset class Indicator 3 months 1 year 3 years 5 years LT-average*
Equities All Share Index 3.9% 4.4% 6.9% 5.8%
12.3%
Shareholder Weighted Index 2.9% 1.2% 4.3% 5.4%
Property Listed Property Index 4.5% 0.8% -2.3% 5.6% 11.8%
Bonds All Bond Index 3.7% 11.5% 9.9% 8.6% 6.9%
Cash STeFI Call 1.6% 6.6% 6.8% 6.4% 5.9%
Inflation CPI (one month in arrear) 1.7% 4.5% 4.8% 5.0% 5.7%
Source: Morningstar
Global Asset Classes ($)
(Performance over periods to 30 June 2019)
Asset class Indicator 3 months 1 year 3 years 5 years LT-average*
Equities MSCI AC World Index 3.8% 6.3% 12.2% 6.7% 8.5%
Property FTSE EPRA/NAREIT
0.2% 8.6% 5.5% 5.8% 6.7%
Developed Property Index
Bonds Barclays Global Bond Index 3.3% 5.8% 1.6% 1.2% 4.6%
Cash US 3-month deposits 0.6% 2.5% 1.6% 1.1% 4.3%
Inflation US CPI (one month in arrear) 1.3% 1.8% 2.2% 1.5% 3.0%
Source: Morningstar
Currencies
(Movements over periods to 30 June 2019)
Currency Value at month-end 3 months 1 year 3 years 5 years LT-average*
Rand / Dollar 14.10 2.3% -2.8% 1.3% -5.5% -5.5%
Rand / Euro 17.95 4.7% 0.8% 2.9% 0.3% -4.1%
Rand / Sterling 16.06 0.8% -0.3% 0.4% -1.9% -5.5%
Source: Morningstar
* Updated annually from 1900, or longest available period Returns for periods longer than 12 months are annualised.
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