Nothing wrong with a positive spin on SA, but let’s not get carried away
While Jeremy Gardiner lures us with his buoyant predictions for the economy, reality brings us back down to Earth
For more than a decade I have wanted to attend one of the economic and financial markets presentations by Jeremy Gardiner of Investec. His reputation in this regard is impressive and I finally got the opportunity to enjoy his latest address, entitled “Taking Stock”.
Gardiner is a seasoned presenter with a sleek and slick performance. Legend has it that he uses a small team whose sole function it is to produce his “theatre”. He keeps up the narrative at breakneck pace, interjecting it with amusing homilies that keep the audience enthralled.
Gardiner forecasts that 2019 will be a year of two distinct halves as far as politics, the SA economy and markets are concerned. The first half is likely to remain very difficult, while the second should start to exhibit some relief.
He urged people not to give up, and he passionately believes the situation will improve noticeably once the May election is done and dusted. “I have never heard my portfolio management colleagues so positive”, he said. And indeed, prior to Gardiner’s main presentation, two of his colleagues gave very bullish views on their outlook for the local equity market. However, one must be cautious of this optimism, as fund managers often talk to their own book.
At the heart of Gardiner’s confidence is the belief that the emerging markets space, in which SA is included, is likely to outperform developed markets as 2019 progresses. He reckons the US dollar will weaken into 2019, as the US economy peaks out; there is mounting evidence that the “gilets jaune”, or yellow vests, are slowly but surely killing the French economy; the German economy is flat; Italy is in recession; and Spain is holding its third election in four years. The Chinese economy (which is more “developed” than “emerging” these days), while still growing, is indeed slowing down.
Gardiner says the SA economy would in fact be 30% larger than it is today, had it not had to endure the nine wasted years of the Zuma administration. He estimates the South African Revenue Service’s coffers would have been R1-trillion higher had it not been for this leader, and that a whopping additional 2.5 million jobs could have been created were it not for him.
I can certainly see the logic in Gardiner’s arguments, many of which are very seductive. However, there was a fundamental issue that concerned me. Other than the predictable outcomes and benefits resulting from a clean-up of the Zuma mess, as well as participating more fully in a general emerging markets renaissance, Gardiner did not go into much detail as to where the SA economic growth is going to come from.
For at least the past four years SA has been stuck in a nasty low-growth trap, from which it has proved almost impossible to escape. This relates in large part to the ANC government’s refusal to embrace profound structural reform of the economy, preferring instead to follow the traditional methods of using fiscal and monetary policies in an attempt to rekindle growth. Unfortunately neither of these two approaches is likely to succeed, since the national treasury desperately needs every cent it can squeeze out of taxpayers, and interest rate reductions are likely to have only a limited impact effect on promoting growth.
While SA investors are at their wits’ end, Gardiner assures us that emerging market specialist investors aren’t nearly as hung up on SA South African politics and they frequently encounter political and economic situations far worse and more deterring in other parts of the world.
His words reminded me of the adage that South Africans are the world’s greatest optimists and the world’s worst pessimists. So sometimes we need to sit back and absorb a superbly polished Jeremy Gardiner presentation, if for no other reason than to get a positive view on life when everything around looks so exceptionally bleak.
• Gilmour is an investment analyst.