ARTICLES

Reshuffle

The announcement by President Ramaphosa of his cabinet reshuffle has received a mixed response from investors. On the one hand, it is clear that he has moved to consolidate his position within the government which should mean that his reform process should be less impeded than it has been. On the other he appears to have been obliged to lose Finance Minister Tito Mboweni either because Mboweni wanted to resign or because he was under pressure from the union movement – or perhaps a combination of both.

Whatever the reason, the new Minister of Finance, Enoch Godongwana, is being perceived as a step backwards and this is reflecting in the rand/US dollar exchange rate. Since the announcement, the rand has lost almost 3% of its value against the US dollar. Clearly, overseas investors do not rate Godongwana and are somewhat disturbed by rumours of his past involvement in corrupt activities.

In any event, the rand which was recovering steadily from recent lows caused by the civil unrest is once again on a weakening path. Godongwana as Minister of Finance is a largely unknown force, but most are convinced that he will not be as disciplined as Mboweni was – and that probably means more taxpayer money going to state-owned enterprises and at least a slower reduction in the government debt. Consider the chart:

Here you can see the long-term strengthening pattern that was interrupted firstly by a shift to “risk-on” in international markets following the scare over the spread of the delta variant of the virus in America and then by the 9 days of civil unrest in Natal and Gauteng. Once the unrest was behind us, the rand began once again to strengthen. Then you can see the impact of the cabinet reshuffle and the loss of Mboweni. The rand has almost come back to touch the long-term trendline – and may still weaken further as international investors reassess the risks of investing here.

We believe that the rand is still fundamentally under-valued against first world currencies and remains in a long-term strengthening pattern. While we see the advent of Godongwana as a negative, unless he does something radical, the strong case for investing in South Africa will re-assert itself over time and the rand will continue to get stronger.

We also see a relationship between the strength of the rand and the new record highs on the S&P500. Confidence in the US economy equates to a general move towards “risk-on” in the international investment community – and that is always going to be good for emerging markets, especially South Africa. The high real rates of return which are available on our government bonds will lure investors away from the security of US and European T-bills, provided we can avoid shooting ourselves in the economic foot.

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PDSNET ARTICLES

Bubble

Last Friday the S&P500 reached another new all-time record high, closing at 6791 and reaching a new intra-day record high of 6807. This is obviously an exciting time for private investors, but with each new record high the systematic risk of a bear trend or crash increases. Consider the chart:

The PEG Ratio

Since the government of national unity (GNU) came into power in June 2024, there has been a definite improvement in the South African economy. Perhaps the improvement is not as dramatic as some people were expecting, but the progress cannot be denied.

Possibly the best indicator of that is the 28% rise in the JSE Banking index which, before the GNU had

Rare Earth Elements

Investors worldwide had been of the opinion that Trump’s ability to impact markets was on the decline. His erratic, on-again, off again tariff policies had either disappeared or had been mostly discounted into share prices. His attack on the second largest economy in the world, China, seemed to have been largely resolved, and a meeting with

US Shutdown

There has been much in the media recently about the US government shutdown and the fear among investors that it might begin to affect the stock market, depending on how long it lasts.

A shutdown occurs when the US government reaches its budget limit and requires a bill to be passed through both Houses to extend the government’s spending limits.

New Listings

Two new companies, ASP Isotopes and Greencoat Renewables, have recently come to the JSE. Both are developing companies that have recently made losses and have been funding those losses by raising capital and selling assets. They both have substantial “blue sky” potential but also carry substantial investment risk. This is probably truer of ASP

Exponential Growth

The  S&P 500 index is important because all the stock markets around the world tend to follow it. If the S&P is in a bull trend then London, Tokyo and the JSE will also be in a bull trend – and vice versa.

The S&P500 index began 68 years ago on 4 th March 1957 with an initial value of 43,73. It took nearly

The US Jobs Market

International investors who trade on Wall Street are generally negative about any good news from the economy because it tends to make the monetary policy committee (MPC) more hawkish and less likely to reduce interest rates. The opposite is also true. But there comes a point where bad news is so bad that investors begin to fear that the US economy is heading

Jackson Hole

Once a year in late August central bankers and academics congregate in Jackson Hole to discuss the state of the economy and consider the way forward. Traditionally, the Chair of the Federal Reserve Bank (“the Fed”) addresses the meeting and gives direction to its thinking on monetary policy in the US. This year, the comments of Jerome Powell resulted in the

Choppies

Choppies is a supermarket chain which operates in Botswana, Namibia and Zambia. It is listed both on the Johannesburg Stock Exchange (JSE) and on the Botswana Stock Exchange (BSE). Notably, the company has resisted the temptation to re-enter the highly competitive and cut-throat retail market in South Africa, having exited that market in 2020 due to sustained losses. Despite

Gold Resistance

All investments throughout the world can be ranked on a scale from high risk to low risk. As a general rule, in the world of investment, risk and return rise together. In other words, as the risks in an investment increase, so does the return necessary to attract investors.

At the one end of the scale there are very low risk investments