Captains of Industry and Friends
“There is no passion to be found playing small in settling for a life that is less than the one you are capable of living” …Nelson Mandela.
On that note, I bid you a grateful and inspired East coast greeting. It is my privilege to serve you our December market view and may it find you and your families in good shape and filled with hope for the future.
The rand lost 1.6% against a trade-weighted basket of currencies in November, placing it in third behind Argentina & Indonesia as the worst performing currencies of 2013. Tanking 16% to the dollar already this year allegedly makes the rand 12.5% undervalued on a purchasing power parity basis. November closings came in at R10.17, R13.64 and R16.32 to the dollar, euro and pound respectively and the currency remains vulnerable to fragile investor sentiment. Anemic growth, a drifting current account & budget deficit, labour unrest & sticky unemployment are proving to be far from an aphrodisiac for the beleaguered ZAR in this increasingly global market-place.
Lower tickets across food, beverage, health, transport & communication categories saw Consumer inflation (CPI) ease to 5.3% in November from 5.5% in October. Producer inflation (PPI) likewise cooled more than expected to 5.8% in November from 6.3% in October. Widespread deceleration in categories such as food & tobacco, wood & paper, chemicals & plastics and furniture all contributed to the tapering off. Inflation is now expected to average 5.8% this year with risks to the outlook moving forward being a vulnerable currency, uncle Sam’s penchant or lack thereof to turn off the liquidity tap & sustained price pressure from food.
The MPC maintained its delicate (inflation vs. growth) counter-balance by keeping rates unchanged (REPO 5.0% & PRIME 8.5%) in November. There was equally no monetary action to report in any of our major trading partners (ECB and BoE striking a neutral pose).
Equity & Bonds
Local industrial, financial & basic equities firmed last month with the JSE all-share index closing November at 45,058 index points. Bond yields rose in line with a weaker currency and the long-term yield curve, with the the benchmark R157 and R186 closing November up at 6.20% and 8.33% respectively. Money market rates hardened with the 3,6,9 & 12 month JIBAR coming in at at 5.19%, 5.64%, 5.83% and 6.03% respectively.
Credit, Money Supply & Governance
Forex reserves were virtually unchanged at $41.6Bill in November whilst the international liquidity position declined to $45.4Bill as the forward position was reduced & foreign deposits increased over the month. The ratio of household debt to disposable income edged lower to 75.5% in Q3 while the interest service ratio remains sticky at 7.7%, implying households are by no means out of the woods. Fixed investment accelerated in Q3 by 3.1% with increased capital & infrastructure outlays by government and SOE’s alike (do the Mexican wave). Credit demand remained subdued in October with private sector extension at 7.6% y-o-y and neither households nor companies showing significant appetite.
Retail remained sluggish at 1.3% y-o-y in October (0.1% in September). Thankfully, Manufacturing expanded again by 1.5% y-o-y in October after contracting by 3.3% the month before with an uptick of production in food, chemicals, footwear and the rag trade not to mention a post-industrial-action bounce in vehicle inventory. The seasonally adjusted Kagiso PMI increased by 1.7 to an expansionary 52.4 points in November. The embattled Mining sector made a rare comeback in October with production surging 22% y-o-y driven by hefty outputs in gold and iron ore. Total vehicle sales by contrast fell to 50806 in November, their lowest level this year (57k last month). GDP growth registered a lower than expected 0.7% annualised rate in the third quarter. The US economy continued its recovery in Q3 up 3.6% whilst EU only managed to eke out a spectacular 0.1% over the same period.
Employment & Education
Wage inflation continues to be a contentious conundrum in a country with one of the highest unemployment rates. The overall average wage settlement rate in collective bargaining agreements has been 7.9% YTD compared with 7.6% for 2012 as a whole.
Last week saw the emotional passing of a global icon. This week marked the 20th anniversary of that very same Nobel Peace winning icon and father whose life is being widely commemorated & wildly celebrated in the hearts of so many. The question that arises is what has “Nelson Mandela’s South Africa done with its last two decades of freedom”? Perhaps the greatest significance of this 20th Nobel prize anniversary is the progress that SA has made in human rights and a strong & functioning non-racial constitutional democracy? Perhaps its 20yrs of sustained economic growth (interrupted only briefly in 2009)? Perhaps it’s the around three million homes that have been built accommodating a quarter of the population or the three quarters whose lives have been improved by electrification, running water & sanitation? Perhaps it’s the many who have been uplifted from abject poverty? Or perhaps still it’s the heart of forgiveness, compassion and hope for the future that is the greatest legacy.
There is no denying we need to face our demons in providing decent education to our children, jobs for almost 40% of our people, an environment for visionaries & dream-builders and a culture of dignity (for the vulnerable in society). Next year marks our fifth “free and fair” election and will no doubt be the most challenging yet for leaders to deliver, produce, enhance, perform, preserve and govern under increasing calls to champion humanity whilst easing our environmental footprint (“social alpha” as they call it).
Ultimately how we conduct ourselves, how we accelerate infrastructure, capitalise on African growth, leverage our position on the UN & BRICS and most importantly how we continue to model to the world true and authentic rainbow-nation-building will determine how we use the opportunity & the gifts we have been given.
“I learned that courage was not the absence of fear but the triumph over it” …a father to the fatherless, Nelson Mandela.
Wildly South African
Bruce & the Team at GENUITY