A happy new year?

Reflecting on the Coronavirus, markets and SA’s prospects.

Feb 12, 2020

3 minutes

Reflecting on the Coronavirus, markets and SA’s prospects.

At a glance:

  • Emerging markets were poised to prosper in 2020, until the Coronavirus came along.
  • The risk-on world so long awaited, should hopefully remain intact once the dust has settled.
  • Brexit is well on track, but expect lengthy negotiations around issues such as trade, fishing, residency, visas and the Irish backstop.
  • Back home, things hopefully should look a little better, with new leadership at Eskom and the South African Revenue Service focusing on fixing the rot.
  • Moody’s has indicated that it may be premature to judge SA on policy progress now. Let’s hope the next risk assessment will be pushed out to November.

As with 2018, and then 2019, 2020 finally looks set to be the year for emerging markets. At last, the fears surrounding the US-China trade deal, and a no-deal Brexit –  while still there – are certainly less ominous than they were this time last year.

Emerging markets need a boring, bland, growing (but not too fast) uneventful world to prosper. 2020 looked like being exactly that:  A risk-on environment, with the world’s big investors signalling a year during which the developing world is expected to outperform the developed.

That is, until a virus came along spreading like something out of the Matt Damon/Gwynneth Paltrow Hollywood blockbuster Contagion.  Suddenly, once again emerging market assets are being punished.

So, what is the prognosis? Whilst it’s impossible to make accurate predictions at this stage, from the available evidence the Coronavirus is apparently more infectious, but less lethal than SARS. And if previous health scares are anything to go by, markets seem to panic initially, sell off, and then once more details are known, or a vaccine is found, recover lost ground. Therefore, this could be seen as a buying opportunity.

So at this stage, the risk-on world so long awaited, should hopefully remain intact once the dust has settled.

In terms of other risks, Trump’s impeachment was never really going to result in his being ousted. His base couldn’t be less interested. He is the first impeached US President to run for reelection (the other two’s parties lost the next election) and he could even possibly be the first impeached President to win a second term. The good news is, he needs a strong economy to stand a chance in November, so expect a less belligerent tone for 2020 which should support a risk-on world.

Brexit, the other big worry from last year, is well on track. The UK is officially separated, and now the divorce deal negotiations begin. Expect lengthy negotiations around issues such as trade, fishing, residency, visas and the Irish backstop.   Boris says there will be a deal by year end, but apparently there’s no chance.

The Europeans have apparently never completed a trade deal in 11 months, and the Canadian model, favoured by the Brits, apparently took nine years to conclude. So, in all likelihood, talks will be extended, and the saga will drag on and on. The good news is that it will become so boring that it will no longer be headline news and won’t be able to scare markets like before.

Back home, things hopefully should look a little better as well. The South African Revenue Service seems to be rapidly fixing the rot and working closely with the National Prosecuting Authority (NPA) and Department of Justice, and we should see some interesting cases go to court this year. By all accounts, the NPA should also be announcing some significant arrests during 2020. The new Eskom CEO seems to have hit the ground running, and although we’ve seen more load shedding recently, one can’t help but notice a refreshing honesty and energy coming out of Eskom.

Finance Minister Mboweni, increasingly vocal of late, will hopefully deliver a brave budget. After a downgrade by Moody’s in March had largely been priced in, Moody’s issued a statement in essence saying that given its outlook downgrade of SA in November, it would be premature to judge us on policy progress now. One could optimistically see that as rating agency speak for “We’re ok for March; expect the next risk assessment in November.”  Let’s hope.

Authored by

Jeremy Gardiner

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