EQUITIES ALWYN VAN DER MERWE, DIRECTOR OF INVESTMENTS & MAX DU PREEZ, JOURNALIST AND POLITICAL COMMENTATOR
This article was taken from Mastermind, the official monthly newsletter of Sanlam Private Investments, a division of Sanlam Ltd., October 2013. Visit the SPI Website
South Africa is in a state of flux, which will probably continue for another year at least. We need to prepare ourselves for volatility.
Hopefully, it will give us an opportunity to buy quality assets at decent prices.
Most South Africans sensed something shifting last year. Anxiety about the future has increased with the rise in political temperature.
There certainly has been a huge groundswell in black anger and impatience since the Marikana tragedy in August last year. Some of the anger is blindly aimed at the business sector, but there is also strong evidence that many are becoming disillusioned with the ruling party’s inability to deliver services and create employment.
The labour sector is in turmoil as newcomers wrestle their way in and Cosatu itself is bitterly divided.
If we didn’t realise it before, we know it now: the continuing inequality in society is the most serious threat to South Africa’s stability.
South Africans should keep their safety belts on for the next 10 months. The election scheduled for May 2014 is going to be the most contested one since 1994 as the Democratic Alliance is making steady progress and two new parties are trying to make inroads into the ANC’s support: Dr Mamphela Ramphele’s Agang and Julius Malema’s Economic Freedom Fighters. Expect a lot of rhetoric, threats, and promises between now and then.
But South Africans should learn to distinguish between electioneering and policy, grandstanding and substance. We should base our analysis on a proper understanding of what makes our nation and our government tick. We should understand what can go wrong and what is highly unlikely to go wrong.
Our stability is rooted in our rock-like constitution, in our strong institutions, our still healthy economy, our vibrant business community, our active civil society, our independent and functioning judiciary, our free media, and very importantly, in our rapidly growing black middle class.
South Africa is not facing an Arab Spring. It is not about to. ‘go the way of Zimbabwe’. There are many negative indicators, but an overreaction to these will simply obscure the many positive indicators.
There is good reason to think that we could have a new commitment to a cleaner and more efficient government from the ANC after next year’s election.
South Africa may be a rough neighbourhood, but there is still more reason for hope than despair. The value of financial assets is derived from what investors believe the value of the future cash flows is worth in today’s money. When their views are clouded by uncertainty, this might have a negative outcome on the future income prospects for South African companies. It is logical to expect that price changes will reflect this uncertainty.
History also teaches us that South Africans have a tendency to overestimate the negative implications of political uncertainty. If we experience a repeat of history in the eight months leading up to the elections, we indeed need to prepare ourselves for volatility and generally lower prices. Hopefully, it will give us an opportunity to buy quality assets at decent prices for our clients.
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