Remove all sharp objects…

I attended a presentation by one of the SA asset managers recently…it was a good job that there were no sharp knives around. It was real slit-your-wrists stuff!

Their view is that SA is pretty much stuffed and that unless there is a significant change in ANC leadership that we are on the “low road” scenario. The reasoning is as follows:

  • SA stuck is in a no growth-low inflation scenario. The only reason the Reserve bank is not cutting interest rates is due to political risk fallout.
  • The global search for yield has kept the ZAR strong (for now) – they see it considerably weaker over 3 years, especially if we get the Moodys’ downgrade on local debt (it seems inevitable at this stage).
  • SA consumers are very stressed with much higher than normal variance in the payday compared to mid-month purchasing patterns (there is a massive spike at pay-day compared to mid month and this is much higher than normal). In addition to this, people are switching away from brand names to “no-name” products.
  • SA food retailers have noted significant change in the composition of the average food basket – food inflation as measured by retailers is very different compared to what is measured by Stats SA.
  • One of the SA retailers reported that for every R100 they are lending consumers, there is an additional R1700 in unsecured credit! Unsecured credit demand has increased radically.
  • Another SA retailer has reported worst figures in 20 years.
  • There are 17million people on social grants and this number is increasing rapidly…government is running out of money to fund this.
  • SA facing poor consumer confidence (reduced spending), poor business confidence (reduced investment in SA) and poor employment numbers.
  • The revenue (tax) base is shrinking, SARS is missing money due to incompetence.
  • SARS (and treasury) have been haemorrhaging skills and there is a significant loss of expertise at both organisations.
  • Tax payer non-compliance has increased as a result (and will continue to increase) thus worsening government revenue.
  • Government is going to be desperately short of funds!
  • The risk of a return to “prescribed assets” for pension funds has increased and along with this a limit on moving funds offshore and possible cancelling of asset swap capacity for local funds!

 

It’s a good job that there were no sharp knives around…having said this though, they are still positive medium-to-long term IF the Zuma faction is outed from government.

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