By: Nicola Mawson
South Africans are becoming more bullish about the economy as inflation comes down and interest rate cuts are on the horizon. This is not only positive for investments into local assets post the formation of a Government of National Unity (GNU) but also consumers, who believe their financial future will improve in the next six months.
Headed into the elections, South African consumers were holding back when it came to investing, said Nolan Wapenaar, the co-chief investment officer at Anchor Capital. “We have seen this recover a bit post-election and expect further growth in time should policies become more friendly toward the economy.”
Anchor Capital’s view is that it takes time for positive government decisions and policies to filter through to the markets.
“We think that the seeds of a reform agenda have been planted, and we are hopeful that, with time, they will take root,” said Peter Armitage, the co-chief investment officer at Anchor Capital.
Fund manager Liam Hechter noted that the quarter to June had been somewhat disappointing as the company had been expecting a post-election rebound.
“I think the base that we're coming off was fairly low going into the quarter, and that’s really prompted us to move to an overweight local equities allocation within our global asset allocation.”
There was also a reason to be bullish, said Hechter, should optimism and feelings of hope for translate into reality. While cautious, the company said many company’s earnings were coming off a low base and most entities found the trading environment before the elections tough.
“There’s certainly more reason to be bullish today than there was six months ago … We'll just wait and see this time and for signs of the actual recovery translating into earnings.”
It would take some time for foreigners to get the confidence to enter the market, said Hechter.
“When people get a sense that things have turned in South Africa, there's a good chance that you're going to see a prolonged early cycle, particularly in the consumer space. That's really what's going drive the next leg higher for domestic assets,” he noted.
Where Anchor would invest, said Hechter, was abroad simply because there were more opportunities there, although he added that people should have a balanced portfolio.
“This is an ideal time to externalise a portion of your portfolio if you have not already done so,” he said.
Wapenaar added: “South Africa’s low economic growth rate has been holding back local investments, making offshore investments more rewarding in the recent past.”
Hechter said Anchor needed to see analysts talking up gross domestic product expectations, while a shift lower in interest rates, core inflation and a stronger currency, which could provide consumers more leeway when it came to making investment decisions.
Old Mutual chief economist Johan Els said he anticipated that average economic growth of 1% between 2015 and 2019, could improve to 2.5% soon as the private sector helped bail the government out, although the GNU would probably enhance that.
“As we see continued improvement in confidence, we can start talking about more around 2.5% economic growth, perhaps around 3% on a more sustained basis. And yes, that's not enough. We need 5.6%,” he said. “The outcome of the elections are more positive than we expected.”
When it comes to interest rates, Investec chief economist Annabel Bishop said interest rates were increasingly likely to be cut by 0.25 percentage points, from the loan rate of 11.75%, in September.
In general, things are looking up for consumers, as shown in the Old Mutual 2024 Savings and Investment Monitor (OMSIM 2024), which indicated that 9% more South Africans were optimistic when compared with the lows of 2023.
At the same time, it showed that 68% of South Africans believed their financial situation would improve in the next six months, up from the 53% as measured in 2020.
People were also preserving savings more, with the number of those dipping into savings down to 45% from 54% previously among those Old Mutual surveyed. At the same time, there were more of what it called “poly-jobbers” – people who used their skills to create a second income – and entrepreneurs.
There are also negatives in the OMSIM 2024 report, with a fifth of people saying they were earning less than a year ago. The study was based on employed South Africans aged 18 to 65, earning a personal monthly income of R8 000 or more, who make up about 24% of the adult population.
The report noted that South Africans were incredibly resourceful and resilient. “Despite facing significant challenges, they’ve shown impressive adaptability and financial smarts, to secure their financial futures. As South Africans continue to navigate their financial journeys, the narrative is compelling – one of triumph over adversity, showcasing the unwavering spirit and extraordinary resilience of South Africans.”
The OMSIM 2024 added that South Africans were diving into the gig economy, starting businesses and using digital platforms to boost their income.
As Armitage noted, investing is a long-term game. “Think of it as a marathon, not a sprint. Although we are more optimistic about the outlook for domestic assets, the benefits of these changes may take time to feed through to corporate earnings and share prices.
“The point is that the next five years look better than the past five, and South Africa should be on your investment radar when constructing your portfolios.”
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