21 October 2020

LIVING IN A POST-TRUMP WORLD

The Reserve Bank’s bond-buying activity eased in October to just more than R410.00mn, under the bond-buying programme introduced to reduce stresses in the market in the wake of the initial panic spurred by the coronavirus crisis.

At a time when many South African companies are either scaling back their involvement in Nigeria or leaving the country, supermarket giant Pick n Pay has revealed plans of opening its first store through a partnership with Nigerian business A.G. Leventis.  The push into Nigeria comes as retailers including grocery giant Shoprite Holdings and Mr Price are withdrawing because of currency devaluations, logistical challenges and difficulties repatriating profits.

South Africa’s new domestic airline Lift has opened bookings for flights, which are set to start on the 10th of December 2020 on two routes – Johannesburg to Cape Town, and Johannesburg to George.  Lift is a partnership between Global Aviation, Kulula founder Gidon Novick and former Uber executive Jonathan Ayache.  Meanwhile, Discovery Vitality has provided an added boost to the travel and tourism sectors, with a generous reward allocation and discount system.

To end of our commentary on South Africa, we illustrate the Medium-Term Budget Policy Statement 2020 and Finance Minister Tito Mboweni’s massive task ahead in a couple of charts as compiled by Larry Claasen from Moneyweb:

South Africa

The country's ability to cope with the pressure on the fiscus is also limited because it's expected to see a R300bn shortfall in tax revenues.

The growth in the deficit is expected to put further strain on the broader economy.

And the cost of servicing it every year has risen by about R100bn over the same period.

The Covid Crises is not helping as the deficit is projected to grow by over R431bn to R761.7bn for 2020/2021

Government Debt has more than doubled in the past seven years.

Europe

On a month-on-month basis, in Italy, the seasonally adjusted industrial production recorded a drop of 5.6% in September.  The decline ended four months of consecutive rises following the first wave of the coronavirus.  Despite the fall Italian National Institute of Statistics (ISTAT) said output was up by 28.6% in the third quarter of 2020 compared to the second, which was hit by the COVID-19 lockdown. (ANSA).


France had posted a trade deficit of EUR5.75bn in September, from a trade deficit of EUR7.71bn in the prior month. The market anticipated a trade deficit of EUR6.32bn.   Industrial production recorded a rise of 1.4% in September on a month-on-month basis, more than market expectations for an advance of 0.8%.


Industrial production in Germany climbed 1.6% in September on a month-on-month basis, less than market expectations for an advance of 2.7%.   In November, the economic sentiment index dropped to 39.00 and recorded a reading of 56.10 in the prior month.


The U.K. economy grew by a record 15.5% in the third quarter, but the second lockdown could derail the recovery.  Thousands of struggling businesses applied to British banks for extra money from state-guaranteed “bounce back” loans as England entered the first full week of the new national lockdown.


U.K. Finance Minister Rishi Sunak recently announced the extension of the country’s furlough scheme until the end of March 2021 in a bid to ward off a sudden spike in unemployment.  Meanwhile, the Bank of England expanded its target stock of asset purchases to £895bn ($1.2tn). The central bank estimates an 11% contraction for the year.

In September job openings rose to a level of 6436.00 K, while consumer credit rose $16.21bn, higher than market expectations of an advance of $9.00bn.

The small business optimism index remained unchanged at 104.00 in October, while the unemployment rate recorded a drop to 6.9% from 7.9% in the prior month.

Apple Inc kicked off its transition away from Intel Corp chips on the 10th of November 2020, revealing the first Mac computers with the main processor designed in-house by the iPhone maker.

Richemont and Alibaba will each invest $550mn in a combination of equity and convertible notes for a combined 25% stake in the new joint venture with online luxury fashion e-tailer Farfetch as they target affluent Chinese consumers with luxury goods. They have an option to buy a further combined 24% of Farfetch China after three years. The deal is expected to be completed during the first half of next year. U.K. fund manager Artemis is increasing its investment in Farfetch with a $50mn share purchase.

United States

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Asia

After Beijing granted the Hong Kong government sweeping new powers to expel the city’s pro-democracy politicians directly, the entire opposition camp is expected to quit following the ouster of four legislators. In response, the U.S. warned of more sanctions on China.  Hong Kong’s securities regulator has privately advised financial institutions they can implement U.S. sanctions without automatically violating a strict national security law imposed on the city by Beijing.


New regulations that could force Ant to raise more capital to back lending and seek national licenses to operate across the country may reduce the firm’s valuation by as much as $140bn, according to estimates from Morningstar Inc. and other firms. The regulatory details are preliminary and could be subject to change.  If Ant’s $280bn pre-IPO valuation is halved, it would essentially mean the company is worth less than what it was two years ago when it raised money from some of the world’s largest funds including Warburg Pincus LLC, Silver Lake Management LLC and Temasek Holdings Pte.


Tencent reports earnings during China’s tech turmoil. The gaming giant will need to explain to investors how it will weather China’s new rules against internet monopolies, which caused a $290bn selloff in the Chinese tech sector this week. Meanwhile, TikTok is complaining about radio silence from the Donald Trump administration—the deadline he set for it to be sold is the 12th of November 2020.


The future outlook index rose to a level of 49.10 in Japan, in October, less than market expectations for a rise to 59.20. In the previous month, the future outlook had recorded a level of 48.30. Japan’s producer price index declined by 2.1% on an annual basis in October, compared with a 0.8% drop in the previous month.


The Reserve Bank of New Zealand maintained the key interest rate at 0.25%, in line with market expectations.

PWM is a boutique wealth management company in South Africa providing bespoke investment services to affluent individuals

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Wealth And Taxes

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Wall Street Hits Another High, While South Africa Gets A Low Blow

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The Week In Numbers 

What Made The Headlines ...

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Pfizer surprised markets on the 9th of November by announcing that it was closer to a COVID-19 vaccine than people had realised. In trials, Pfizer and BioNTech’s vaccine had shown a more than 90% effectiveness in preventing COVID-19 infections – the most encouraging advance yet in the fight against the virus. Pfizer Chief Executive Albert Bourla enjoyed a vaccine windfall after a surge in the U.S. drugmaker’s share price prompted the sale of $5.60mn of stock he owned in the company.  Pfizer’s announcement was more good news for a market that was already jubilant after Joe Biden’s victory in the U.S. Presidential Election. 

With America now in a post-Trump world, the news headlines are bound to look quite different with the focus shifting to Russia, China and Brexit.  Joe Biden will be inaugurated as America’s 46th president on the 20th of January 2021, and, at 78, is the oldest American president ever. 

All U.S. presidential candidates have an ambitious list of tasks they promise to accomplish on the first day of their presidency. Often, the Day One agenda involves reversing unpopular actions of their predecessors and can be achieved by executive order without waiting for Congress. 

Here is some of what is on President-elect Joe Biden’s Day One agenda:

  • Anti-pandemic strategy
  • Rejoin the WHO
  • Economic revitalisation
  • Judicial reform
  • ‘Pathway to citizenship’
  • Rejoin the Paris climate accord
  • Restore transgender students’ rights
  • End the “Muslim ban”

Joe Biden’s choice of Washington operative Ron Klain as his chief of staff signals a return to the White House’s traditional managerial style.

Ace Magashule is due to appear in court on the 13th of November on charges of his alleged involvement on the R255-million asbestos audit contract, joining others like Edwin Sodi already on the charge sheet. It is the most significant move that the National Prosecuting Authority (NPA) has made against the State Corruptors and is indicative that the legal systems are starting to move into higher gear. 

Turkey ousted its central bank governor. President Recep Tayyip Erdoğan’s firing of Murat Uysal after the lira fell to a record low was followed by the resignation—via Instagram—of finance minister Berat Albayrak.

A key bondholder group is set to reject Zambia’s request for an interest-payment holiday, putting the country on course to become the first African sovereign defaulter since the onset of the coronavirus pandemic.