ECONOMIC AND MARKET OVERVIEW
Global
It has been 6 months since large parts of the world went into some respective form of lockdown. Recent macro-economic indicators show that the impact on economic activity was severe. Most countries, however, seem to be past the worst of the Covid-19 pandemic and, with the backing of significant fiscal stimulus, appear to be making their way back to previous levels of economic output.
The recovery of the global economy to the levels last seen at the start of the year is unlikely to be uniform around the world. Developed countries, in general, are likely to bounce back quicker as they have more fiscal firepower, whereas their emerging counterparts may take longer to recover. There are, however, exceptions as this table from an Economist Intelligence Unit special report displays:
hyper-inflation in years to come. Sharply rising consumer prices has not been an issue for the last decade despite the best efforts of policymakers to increase money supply. Asset price inflation has, however, been rife as equity and bond markets forged ahead – particularly in the United States. The availability of easy money has pushed the valuations of high quality assets (including US Treasuries) and a handful of technology companies into very expensive territory.
The big themes that will hold the attention of global investors in months to come include inflation, the long-term direction of the US Dollar and the potential for outperformance of emerging countries (economies, currencies and markets). Add to this the upcoming presidential election in the United States, Brexit, the ebb and flow of trade wars, and the development of a Coronavirus vaccine and we have the recipe for anything but smooth sailing towards the end of the year. However, investors can rest assured that this will also create opportunities for those who manage to separate fact from fiction.
South Africa
President Cyril Ramaphosa announced the move to level 2 of the national lockdown which has enabled a large part of the labour force to return to work. This coincided with a slowdown in South Africa’s Covid-19 infection rate and number of daily deaths.
The impact of the lockdown on the local economy was deeply severe. However, not all areas were equally impacted as this study done by Nedbank’s economic team shows:
The perilous state of many of South Africa’s state-owned enterprises was not helped by the economic impact of the lockdown. Despite lower electricity demand from industry, Eskom continues to battle with power generation and in a recent interview Eskom CEO André de Ruyter indicated that load shedding is likely to remain with us for the next 18 months. The upside is that, for the first time, it seems as if Eskom understands the extent of maintenance that needs to be done. They’ve also started to act against their senior and middle managers who have failed in their responsibilities for the upkeep of generation capability. This is certainly a step in the right direction.
Speaking of steps in the right direction; in a recent article the political and trend analyst JP Landman highlighted several developments that can easily be overlooked in the quagmire of negative news that trends on social media. He mentioned the replacement of senior officials that has already taken place and provided examples of misspent money that has since been recovered. The conclusion of the analysis is that getting rid of incapable people, replacing them with better ones, and building up institutions takes time. We elaborate on this topic in this month’s commentary at the end of this publication.
South Africa seems to be faced with so many headwinds across all spheres of life. However, it is often in times like these that the people of this country stand united and surprise with their resilience and stamina.
