00:00:
Welcome to InMarket Insights, Standard Bank Global Markets'premier broadcast
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series that delves into Africa's
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dynamic business environment in an era marked
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by unprecedented geopolitical tensions on a scale not seen since World War II.
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I'm Godfrey Mutizwa.
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Now, as the world recalibrates in response to shifting alliances and economic power
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plays,
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Africa emerges as both a fertile ground for growth and a complex arena with unique
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challenges.
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In today's episode, we look at at the prospects for South Africa's capital
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markets in these uncertain times.
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Let me welcome my guest, Rudy Dix, Head, Project Management Office in the
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Presidency.
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Welcome, Rudy.
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Thanks, Godfrey, for inviting me.
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And Deanne Gordon, Strategist, Standard Bank Equity Research.
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Welcome, Deanne.
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Thank you, Godfrey.
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Let me begin with you, Rudy,
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and perhaps speak to government efforts to get growth going again in South Africa.
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In particular, the whole effort around...
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Operation Volindela, as well as the extensive reforms that we know the
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government has been implementing?
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Absolutely, Godfrey.
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I think that one of the key challenges that our country has been facing is slow
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or lacklustre
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economic growth.
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Certainly at the rate of growth that we're going at,
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recognition that that would be insufficient to absorb the number of
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people that are unemployed,
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neither would it create the kind of investment.
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or the kind of development that is required from a genuine economic point of
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view.
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Government's recognition that we needed to do something quite drastic to be able to
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change the fortunes and to ensure that we get much
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more higher growth, much more inclusivity, much greater levels of investment.
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And of course, part of that process was during COVID and towards the end of COVID
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when government
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had adopted the Economic Reconstruction and Recovery Plan.
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And one of the key tenants of that plan was the structural reform program.
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And the focus was basically, you know,
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what is in government's power that we are able to change and ensure and create the
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kind of
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confidence for investors to invest in a new growth paradigm, which is under the
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economic reconstruction recovery plan.
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And of course, Operation Woodland Leather, the structural reform program was
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initiated.
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And the five key things that it did focus on was ensuring that we get energy supply
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and reform the energy market,
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ensuring that we improve our logistics.
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And, you know, again, reform to create a more sustainable and efficient and
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competitive logistics sector
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to do with water and water constraints.
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to deal with telecommunications issues, for example, spectrum auctioning, for
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example, as one of those focus.
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And the fifth area was, of course, the area related to visa and visa reforms,
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because we needed to track the right sort of skills into it.
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And that's been the focus of the structural reform program.
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And of course, you know, its first phase came to an end at the end of the sixth
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administration.
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The president has, of course, indicated that the second phase in the seventh
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administration would have to continue.
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And so we've got a lot of work that we've done, but I think certainly the work that
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we've done around the structural reform program
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has created a high level of confidence.
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We've shown actually that it's not just a talk shop, it's not just about promising
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changes,
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but in actual fact seeing those changes happen, like in the electricity space,
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like in the telecommunications space,
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like in the visa or the water space.
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I mean, these are important changes that have been around for some of these.
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Policy decisions have been around for many, many years, sometimes decades, and
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they've never been implemented.
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What we've done is to work together with the government to implement those changes
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and to ensure that that can impact on the kind of economic
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growth that we require.
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Yeah.
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Now, some would be asking the question, so you are talking about the work that you
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have done, the progress that you have made.
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But we also know now that government is expanding Operation Vulindela.
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And some are asking the question, you're taking more additional responsibility, yet
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we know.
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The water situation has not been resolved and we do know that we're at the beginning
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of the visa regulatory
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reform.
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How can you justify adding these other things when you have got still work to do
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on the first part?
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I mean Godfrey you spot on the reasons why we only chose five.
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One of the problems with government, sometimes it's not only government, it's
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you know generally our society we tend to take
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When we talk about priorities, we tend to have a long list of priorities.
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You know, when you talk about key priorities, you've got to talk about, you
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know, three, four, five, you know.
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And when we started the reform program, we could have added a whole series of
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different reforms that would have been, you know, equally impactful.
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But we chose those five because those five, according to the models that we run,
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would have given three and a half to five percent over the next five years on the
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baseline for growth.
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So that was an important part.
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Our decision was not based on emotions, our decision was not based on anything
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else,
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but that what would have given us the biggest level of growth, and that was the
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reality.
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So, of course, there are...
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There are still outstanding matters.
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Electricity, although we've had more than 269 days of no load shedding,
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the fact is that we're not entirely out of the woods yet.
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We've got to grow our economy, which means there's greater demand for electricity.
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We've made reforms in the energy space to introduce a competitive market within the
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generation.
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We're forming a national transmission company of South Africa to allow for it to
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be able to regulate that market space.
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So these are changes that are going to be quite important that we've got to carry
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through.
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Similarly in water, as you've used as an example.
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Visas, I think we've done exceptionally well in the last few months,
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particularly the points-based system and the nomadic visa or
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the visas that systems are being adapted towards,
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the kind of ability for us to become globally competitive.
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What we are doing is adding on three, only three new reforms.
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So over and above that, we have pressures of long lists of reforms, but we're adding
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on three,
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which we think is quite important to enhance and lift economic growth.
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The first is local government.
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And we're going to look not specifically at trying to fix local governments.
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So it's not about interventions to run local governments in municipalities.
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But it's trying to deal specifically with water distribution or electricity
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distribution, for example.
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So it carries forward the energy reforms and the water reforms, but down the value
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chain.
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And I think that's quite an important part.
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Similarly, we said the second new area is digital transformation.
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And we think that's a no-brainer, for instance.
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Issues related to digital identification, digital payment systems.
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These are important areas that we introduced during COVID times.
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that we think we need to institutionalize.
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We need to make it much more easier for citizens to adapt, for government to
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provide the services,
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and to create great efficiency in that.
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And the third area is spatial inequality, or spaces.
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And we've said that because, you know, while it's quite important to be able to
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introduce efficiency in the way that people live and work,
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it also has an impact on business.
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And this relates to public transport, for example, or human settlements.
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Title deeds, for instance, which we had in the first reform.
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which we're carrying through.
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So it's not a bundle of a whole set of 20 other reforms.
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It's a continuation of work.
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Continuation on the past work moving into different areas of focus.
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Deanne, let me come to you and bring you into the conversation here.
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So I just wanted, at the outset,
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your view in terms of how the markets have viewed the reforms.
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Before we talk about the impetus that's been brought in by the formation of the
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government of national unity as well.
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Sure.
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Look, I think you've seen both the equity market and the bond market rally
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significantly this year as a result of a lift in confidence and optimism following
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the
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elections and the creation of the government of national unity.
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And in actual fact, both your equities and your bonds up until the Trump victory were
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up.
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15% in local currency, which is a very nice little run.
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I think there's definitely been increased optimism about the structural reform
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process, having legs and a cyclical recovery taking hold in South Africa.
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I think note too that in our view,
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we think South Africa probably was close to hitting rock bottom last year.
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Obviously, with load shedding weighing very, very heavily.
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But I think there was a lot of pessimistic views that we wouldn't be able to see
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growth
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lift above 1%.
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And I think that has changed meaningfully post the creation of the government of
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national unity for two key reasons.
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I think one, that there has been buy-in across the board,
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and this is really according to Rudy.
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from the Government of National Unity for Operation Will and Leila.
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And I think that's absolutely critical to ensure that the structural reform process
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continues to gather momentum because
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that's definitely the engine of growth for SA going forward.
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I also think that what has raised optimism is, and this is our view,
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that for the first time,
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I want to say almost an essay's history of recent history.
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We've got a very,
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very strong cluster of what we term economic ministers to actually ensure that
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we
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do see a growth lift.
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And I think there, you know, I can name them.
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Minister of Transport, Barbara Creasy, I think, has got an excellent reputation.
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We know what the Minister of Electricity has done.
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We've seen that with...
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you know, over 200 days with no load shedding.
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And then you've got a Minister of Trade and Industry, and according to lots of
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sources,
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is also absolutely business-friendly, market-friendly, growth-friendly.
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And obviously the Minister of Finance has got a long history with us and he's very
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safe hands.
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And what we also include in that cluster is the Minister of Police,
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who I think...
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It has definitely, the market is very confident that if you look at those core
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group of ministers,
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that they should be able to drive a stronger growth trajectory going forward.
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And I think that's one of the key reasons that we are seeing strong performance
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coming through.
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There's increased optimism that the structural reform process continues and
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has got buy-in across
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the board.
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And I think together with that,
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you've also got the cyclical prospects which have improved with inflation falling
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and rate cuts commencing.
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So I think for the first time in a long time, we've actually got quite a virtuous
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cycle playing out in SA,
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where you've got structural reforms, gaining traction, which we've seen in
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electricity.
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And you've got, on the other hand, cyclical lift.
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coming through from rate cuts, lower inflation.
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And what I'd include in the cyclical lift is improved confidence, which is pretty
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critical.
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And I think there it's business and consumer confidence, which is definitely
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improved.
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Yeah.
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I'm going to come back to you and ask you if we have done 15% of their prospects for
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another 15% in the coming years
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ahead.
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But park that question for now.
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I want to, though, raise an issue around the risk of a.
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This optimism that we have built, unravelling, dare I remind you of the days
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of Ramaphoria?
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Yes, and I think that's one of the key reasons that we've seen foreign investors
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being sidelined,
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is I think that's very fresh in their minds that there was huge optimism around
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President Ramaphosa coming in.
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And unfortunately, delivery took a bit longer than expected.
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And I think that's really what it boils down to.
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I think we're actually seeing tangible signs of structural reform delivery,
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thanks to Rudy's team and to just that engine room working so hard.
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We've seen it in electricity.
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We're definitely starting to see signs that Transnet and the logistical issues
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are bottoming and there's signs of
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stabilization.
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and that that should start improving in the medium term.
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We've seen it on the visa front.
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So I think there's tangible evidence, whereas Ramaphoria we were hoping for a
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lot.
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I think there's a lot more evidence now.
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And I think, you know, as I mentioned earlier as well,
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I think the cyclical recovery is definitely taking hold too.
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And we're hoping that the RAN continues to behave really well.
13:04:
Yeah.
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And that that...
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plays through to lower inflation and subsequently, you know,
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further scope for rate cuts to work through over the course of next year.
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But I do think the critical, critical,
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critical element that's been missing for a very long time in South Africa is
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confidence.
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If you eyeball any of the business or consumer confidence charts or just look at
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the numbers, they haven't broken even.
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since prior to the Zuma era, since 2008.
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And over the course of the last quarter, we've definitely seen a lift.
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And I think if you can just maintain the momentum of the structural reform process,
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you see a continued lift in confidence.
13:47:
We actually think that growth should be significantly improved from
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the sub 1% level that we've got so used to in South Africa.
13:57:
Yeah.
13:58:
Rudy, I noticed that she said,
14:01:
critical twice when she was referring to the issue of confidence.
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And I want you to speak a little bit to that.
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But I also want you to perhaps reflect on the skepticism that was built as a result
14:15:
of the Ramaphoria
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era.
14:19:
I probably won't be able to speak so much about the Ramaphoria because this is, you
14:23:
know, the president,
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of course.
14:27:
You know, I mean, think just a small bit of historical.
14:29:
context.
14:31:
I think it's something that people tend to forget.
14:33:
Within its first year, the president had to confront COVID.
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So COVID had started.
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You haven't had completed a year yet, and you already had a crisis where you had to
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lock down the economy.
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You had to deal with a national crisis.
14:48:
Employment took a big knock.
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Growth took a big knock.
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Investment took a big knock.
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And we're only seeing some of that being recovered three, four years later.
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A labor market just recently recovered.
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So I think sometimes we forget the context also that the fact that you had to deal
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with a whole series of different crises.
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Let alone the fact that I think that the president had to inherit state capture,
15:11:
had to address the fact that state capture had destroyed the capacity of the state to
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deliver.
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And had to then say we needed to develop a program for us to be able to address some
15:23:
of these fundamental constraints,
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which is including the reform program.
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I think that for the last four years and into the new administration,
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I think the fact that we've maintained that momentum.
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We have remained accountable and transparent.
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I think what the market does like, what people in the banks or in the financial
15:46:
markets do like,
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is that every quarter we provide a report and update of the reform program.
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Every quarter we indicate where we...
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not, you know, we're failing or whether we're not succeeding in that reform
15:57:
program.
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We're indicating the reasons for that.
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But the point about the momentum being maintained, because, you know, a lot of
16:06:
the reform programs are, you know, telecommunications,
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for example, auction.
16:10:
Yeah.
16:12:
We sold off the spectrum.
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You did.
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Right.
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We made some money.
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It's now for the MNOs to invest and to expand and to bring down the cost.
16:22:
We've seen the cost being brought down in the last year or so.
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And so similarly, we see some of the other reform programs.
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We take decisions and people take investment decisions.
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That's confidence that they're prepared to spend money to deal with us.
16:30:
Similarly for the energy space, Standard Bank, a huge investor in the renewable
16:37:
energy sector,
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both for the auction IPP program and for the private generation that we've done
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because of the legislative changes.
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The important point that I think Deanne makes is the continued momentum.
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The fact that the.
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The president himself is in charge of the structural reform program,
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indicates that seriousness at the head of government is prepared to drive and
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deliver on the reform program.
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And that he set a team in motion, you know, between the presidency and national
17:05:
treasury to continually drive through and
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take the reform program across the line.
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So it's not us sitting on our laurels and having to say we're going to do this.
17:13:
You know, regularly we're reminded about what has been.
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what you've done.
17:18:
And then we've already started asking questions.
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So has this been impactful?
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So I suppose for us to maintain that level of confidence is our ability to continue
17:29:
the momentum,
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continue driving the reform and showing that it wasn't just a blip.
17:33:
It wasn't just a little bit of bump, but in actual fact, it's something that's
17:37:
continuous.
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Because that's the only way we can sustain the kind of growth that we want.
17:41:
Absolutely.
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I have to say, as a reporter, certainly I think the flow of information from
17:47:
government
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to the country in general has certainly changed.
17:50:
There's no question about it.
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Access to ministers is improving and access to technical experts like
17:57:
yourselves has also been improving.
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But the people in the banks...
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While they listen to words, they like numbers better.
18:03:
Let's talk about the difference that government hopes it will make in terms of
18:10:
upping South Africa's economic growth rate,
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which has, as we all know, in the decade or so before President Sili Ramaphosa came
18:16:
in,
18:17:
really plateaued and, in fact, was below population growth.
18:23:
Put some numbers in terms of what government hopes to achieve in economic
18:26:
growth terms.
18:28:
I've heard the 3% thing.
18:30:
I want to hear it again.
18:32:
No, I'm not going to put numbers.
18:34:
The N are the ones who run those numbers.
18:36:
Look, we've run certain models.
18:38:
The banks have run certain models.
18:40:
Certain academic institutions like the Bureau of Economic Research has run
18:43:
certain models.
18:45:
And all they've done is said, if we plug in a whole set of variables, including
18:50:
predominantly the structural reform stuff,
18:52:
if we've done what we said we've done and we continue to do what we say we're going
18:55:
to do,
18:56:
And you take the cyclical changes, which Deanne had referred to,
19:02:
suddenly we become favourites amongst emerging markets.
19:08:
We're going through an interest rate decline, inflation.
19:14:
receding, those are all important parts of creating the kind of economic changes.
19:21:
There are also demand side interventions that are required.
19:23:
Government support for industrial policy, for example,
19:27:
or various interventions to support growth in some of the sectors.
19:31:
These are all contributing factors.
19:34:
Ideally, what you want is anything.
19:37:
I would love to see growth of 3%.
19:41:
But when someone says 3% in 2025, I mean, I...
19:44:
become also skeptical being an economist myself.
19:47:
I mean that would be absolutely revolutionary to see the jump from where
19:54:
we sit right now to something like three percent you know.
19:56:
So I suppose what would be important is to build that momentum.
19:58:
So you don't also want too fast growth right you may not have the capacity to be
20:04:
able to sustain that.
20:06:
Absolutely.
20:08:
So you want to see the kind of growth that lifts you above two to two and a half
20:09:
percent potentially next year.
20:11:
Yeah.
20:13:
At the end of that quarter, you know, taking us into 2026,
20:15:
much of the fixed capital formation coming through in the energy and in the logistics
20:21:
space.
20:23:
That's the kind of growth that you want, you know, and you want to see.
20:24:
So I mean, rightly so, lots of permutations of forecasts,
20:30:
but ultimately it's, you know, it's what we got to do and deliver.
20:34:
Yeah, yeah.
20:35:
Deanne, I zeroed in on that 3% number.
20:39:
In fact, it's more than 3%.
20:40:
I think it was 3.3%, if I remember the number accurately.
20:42:
The president has spoken about it.
20:44:
Members of his cabinet have spoken about it.
20:46:
And I just wonder how the markets have viewed that number,
20:50:
given the past disappointments that we talked about earlier.
20:54:
And also the fact that these are numbers that we haven't seen in the last 15 years,
20:58:
because we'd have to go back to 2004, 2005, right?
21:02:
Yeah.
21:03:
Look, I think a couple of points to make.
21:05:
One, our base is really low.
21:07:
The 2023 base, like I said, I kind of think we tripped at the bottom of the
21:13:
hill.
21:13:
We couldn't fall much further looking at all the impacts that converged last year.
21:19:
So if I look at it from an earnings perspective, the base is really low.
21:23:
So we quite upbeat about base effects delivering very solid teens,
21:29:
at least earnings growth.
21:32:
I think it's probably similarly true for GDP growth.
21:35:
And I think the Reserve Bank's model showed that electricity cost the economy
21:42:
in terms of GDP growth some
21:44:
2% last year.
21:46:
So some are actually just doing a back of the matchbox calculation by saying, OK,
21:50:
let's add on the 2%.
21:52:
Then if that's what load shedding did last year, we should have at least 2% this year
21:58:
if you add it back on.
22:00:
So I think expectations generally.
22:02:
from investors are that we should be able to achieve 2% next year minimum.
22:08:
I don't think anyone's quite at three.
22:10:
I think everyone's too scared to put their, kind of stick their necks out and
22:16:
get that bold because we've all, you know,
22:18:
once bitten, twice shy, or should I say lots bitten, twice shy.
22:21:
But I think from an earnings growth perspective in particular, we're very
22:28:
confident about teens'earnings growth.
22:30:
And it's in particular from...
22:31:
the domestic inc, domestic cyclical sectors that are so downtrodden and that
22:38:
base is so low
22:40:
because they were so badly hit by very low demand by load shedding,
22:43:
your base is you know basically at least zero if not negative and you should see
22:50:
quite a nice bounce off that
22:52:
base going into 2025 with the bulk of the load shedding impact weighing in the
22:56:
second half of
22:58:
last year.
23:00:
So the second half of this year into next year should be a lot stronger.
23:02:
So I think it's base effects, which, you know,
23:05:
partly driving renewed optimism and higher expectations for growth.
23:12:
But I also think that the fact that the structural reforms are taking hold has
23:18:
definitely moved sentiment.
23:20:
And I do think that we should be relatively confident about 2%,
23:25:
2.5%.
23:26:
percent growth coming through.
23:29:
Yeah, in fact, I think SBG Securities is recommending an overweight position on
23:34:
South African equities and bonds.
23:36:
And this is from an asset allocation perspective.
23:37:
And you've already spoken about the 50% that you saw.
23:42:
The question then becomes,
23:43:
but for how long and what kind of drivers do you see taking South Africa
23:50:
further if you do see this momentum building in terms of outperformance by
23:55:
South African assets?
23:57:
I think there's a lot of bad news priced into our risk assets.
24:00:
And what do I mean by risk assets?
24:02:
It's basically your equities and your bonds.
24:05:
I think we've got a big political risk premium that's priced into the bonds that
24:12:
should hopefully start settling
24:14:
as we see the government of national unity getting its teeth sunk into key issues.
24:20:
I think it's also related to fiscal discipline working through, and hopefully
24:25:
that...
24:27:
leads to some repricing of the bond market together with lower inflation and lower
24:31:
short rates.
24:33:
I think in terms of the equities, I think, yeah, again, a lot of bad news priced in.
24:38:
When we do the calculations and whether we look at the JSE index or whether we look
24:44:
at the
24:45:
MSCI, which is what our global peers look at, the MSCI SA,
24:50:
which fits into the MSCI emerging market universe.
24:53:
Yeah.
24:54:
South Africa is derated by 50%, by over 50%, in fact, since 2015.
25:01:
Sure.
25:02:
So a lot of bad news priced in.
25:04:
So we definitely see scope as you see a growth lift,
25:08:
as you see greater confidence about reform delivery for some re-rating to work
25:15:
through.
25:15:
We've started to see a bit of it come through this year.
25:19:
But we think of that.
25:21:
50% derating base,
25:23:
we should be able to see at least 15% to 20% re-rating over the medium term in
25:29:
South Africa.
25:31:
So we think it's got legs.
25:32:
We think it's relatively enduring.
25:34:
It's not just re-rating.
25:35:
If we correct and you see ongoing structural reforms together with a
25:41:
cyclical recovery,
25:43:
some lift in commodity prices,
25:45:
this should be a medium term recovery story in risk assets where you should-
25:49:
be able to get teens returns in local currency over the course of the next three
25:55:
years.
25:57:
Yeah, I want to come back to you and talk a little bit about perhaps where you see
26:02:
the easier money being made
26:04:
within that equities universe.
26:05:
And perhaps if you've got some names for me, that would be great.
26:08:
But let's bring in Rudy, because the ability of the market to outperform is
26:15:
obviously predicated on the
26:17:
performance of the economy.
26:19:
And we have seen.
26:21:
in the U.S.
26:23:
election, dare I say it, a complication of the picture going forward.
26:26:
And one of the key reasons is that complication is because of the incoming
26:30:
U.S.
26:30:
president's stance on stuff like trade.
26:34:
Foreign direct investment inflows in South Africa have been dire, and we know that
26:40:
they have not yet picked up.
26:42:
So I wondered your thoughts in terms of the government approach to this,
26:44:
to buttress and support this optimism that Diane is talking about.
26:50:
Yeah, I mean, I think there's a couple of global risks.
26:52:
I mean, I think Europe is not looking in a good state either, right?
26:57:
And partly there are a number of factors with relation to that.
27:01:
I think the biggest risk for us, of course,
27:03:
is whether a goer itself would be at risk and whether the incoming president, the
27:09:
incumbent,
27:10:
potentially takes a much stronger stance on tariff protection relative to...
27:16:
what is done previously, that would knock our manufacturing quite hard.
27:20:
Sure.
27:20:
Particularly the autos, right?
27:21:
100%.
27:23:
It's our third largest auto market, the U.S.
27:27:
market.
27:28:
So I certainly think there's a lot of work that we've got to do.
27:30:
This is a reality that we've got to face, an incumbent that takes a particular
27:35:
stance.
27:37:
We've got to think about how one diversifies our markets, strengthen
27:43:
existing partners that are there.
27:45:
I also think there are opportunities.
27:46:
So we've got to think about how one deals with some of the opportunities that are
27:50:
there from where we sit.
27:52:
We're still relatively competitive in some certain products and I think in services
27:58:
as well where they are tradable.
28:00:
And I think that we're going to have to find ourselves in that situation.
28:06:
Other than having to, like many others, sit there and feel dire about it and just
28:12:
despondent.
28:14:
I certainly think there's a great opportunity for us.
28:15:
I mean, you know, the fact that we've been able to take some significant changes
28:21:
within the energy and logistics space,
28:23:
you know, shows that, for example, one of the leading investors of renewable energy
28:29:
in the African continent is ourselves.
28:31:
Sure.
28:33:
Similarly, some of the stuff that we're going to do in logistics, for example, and
28:35:
the reform that we're going to introduce.
28:37:
Again, there are significant opportunities in the real economy, which, of course, has
28:41:
a significant impact on.
28:43:
equities and the bond market.
28:45:
Certainly, we've got to see a greater role of private sector in spaces that we don't
28:51:
see traditionally, and I think that's what will attract people to our shores.
28:53:
The fact that it's not government or the state sector going out looking for
28:56:
borrowing.
28:56:
It is in actual fact the private sector looking for financing and capital to fund
29:03:
projects that would be in a traditional
29:05:
state sector that would, in some sense, been important for our developmental
29:08:
objective.
29:10:
And I think that's what makes a big difference and makes it attractable for, I
29:13:
think, external markets.
29:15:
Absolutely.
29:17:
Deanne, come in and give me that color.
29:19:
But perhaps before you do, I just wanted to pose a question around the extent to
29:21:
which the markets are
29:23:
pricing the Trump victory as a risk or opportunity.
29:26:
Let me not be pessimistic.
29:27:
Yeah, look, I'm going to just summarize very briefly our global strategist's view
29:34:
on a Trump
29:36:
victory.
29:38:
We do think that a lot of the movements that we've seen are temporary.
29:40:
So in particular, dollar strength, which obviously has an impact on the RAND.
29:46:
The points he makes are Trump's policies have not changed from his first term in
29:52:
office.
29:53:
And you didn't have a particularly strong dollar then.
29:56:
And the second point he makes is that Trump in actual fact favours a weaker
30:02:
dollar.
30:03:
So from that perspective, we think that the flurry that you've seen in the dollar
30:09:
will be relatively
30:11:
short-lived and that we're still relatively constructive on the RAND
30:14:
outlook,
30:16:
which then feeds through to our view of staying overweight domestic assets
30:21:
relative to offshore assets.
30:23:
I think obviously the unknown is...
30:25:
how from an inflation perspective globally,
30:28:
how inflationary his policies are going to be and how he tinkers or tampers with the
30:35:
Fed.
30:36:
And obviously with Jerome Powell's term coming up for renewal or replacement,
30:42:
we're not sure what happens post that.
30:45:
But I think those are the uncertainties.
30:46:
The market's pricing in more inflation, the market's pricing in a much stronger
30:52:
dollar.
30:54:
But as I said, we think that it's largely temporary if we look at his first term and
30:59:
the performance
31:01:
during that.
31:03:
Yeah.
31:05:
So you keep referencing these bright spots within the equity space here in South
31:08:
Africa and your position overall on
31:10:
South Africa.
31:12:
Let's talk a little bit about where you've seen that money being made.
31:14:
So we are in particular positive about domestic cyclical
31:20:
stocks.
31:21:
So stocks that move as interest rates move.
31:26:
In particular, I think the easiest play in the market, the most liquid are probably
31:33:
the banks.
31:35:
Now, generally,
31:37:
the banks do well in the latter part of the interest rate cutting cycle.
31:42:
But we think that the banks are actually quite well positioned to take advantage of
31:48:
the surge in
31:50:
renewables.
31:52:
the investment and we actually believe that credit growth could be enhanced as a
31:57:
result and we haven't really
31:59:
had a credit growth cycle in South Africa in a very long time.
32:01:
Credit growth has been very pedestrian at around 4-5% year on year.
32:07:
So we think there could be quite a nice lift as Rudy said,
32:12:
you see a lot of private sector investment and all that needs funding and we think it
32:16:
will.
32:17:
We've seen Standard Bank very involved.
32:19:
We think all the banks will be very involved.
32:21:
So we think there's a credit cycle.
32:23:
And over and above that, if we write and you see some compression in bond yields,
32:30:
you should get a re-rating of your bank sector as well.
32:36:
So we're very constructive on the banks.
32:38:
We also really like your credit retailers.
32:41:
Very similar story to the banks.
32:44:
Lower short rates, improved demand.
32:46:
For the first time, if you do see some credit cycle because consumers are a bit
32:53:
more upbeat and confident,
32:55:
again, it all comes back to confidence, then we think the credit retailers look
32:59:
very interesting.
33:01:
And we also like the industrial plays.
33:03:
And they, in particular, they're a bit small and relatively illiquid,
33:07:
but we think the construction story has got legs in South Africa.
33:13:
We've seen some really nice prints coming through from companies like Raubix, Wilson
33:19:
Bailey, where their order books are full.
33:21:
We've seen...
33:23:
improved spending capacity coming through from government and then you've obviously
33:28:
got private sector spend as
33:30:
well so we we constructive on the infrastructure investment story and as a
33:35:
result on the construction
33:37:
companies and then other big industrials as well that should benefit from an
33:41:
overall better
33:43:
GDP growth environment in South Africa yeah and I'm sure it's a story that Rudy
33:48:
likes closing remarks from you
33:50:
Rudy just in respect of that outlook and the work that needs to be done by the
33:55:
government to support the optimism that's being built in the markets.
33:57:
I mean I think that Dan is right and I think that's the kind of optimism we want
34:02:
to see it go through the real economy right I mean that's that's
34:04:
the most important part of of why we think this is quite critical because that's
34:08:
where we investors want to see it in earnings.
34:10:
Absolutely in earnings and and you know it's where you get the kind of real
34:15:
Remember,
34:17:
you started off with foreign direct investments, right?
34:18:
FDI flows, that's what you want at the end of the day, right?
34:21:
So the opportunities are here, and I think that's what we've got to sustain and keep
34:26:
the momentum going.
34:28:
So the structural reform program, the ability for us to create and partner with
34:32:
the private sector,
34:34:
increasing private sector participation in energy and rail space and elsewhere are
34:38:
going to be important,
34:40:
all marks of what we've got to do in the reform space.
34:41:
I think particularly a thing that I didn't speak about is the fact that we've got to
34:48:
enhance our partnership and collaboration with
34:50:
business.
34:52:
Because that in itself is also an important confidence measure that we are
34:56:
able to work together on resolving outstanding problems
34:58:
as government with business.
35:00:
Now, this is not business telling government what to do.
35:00:
Yeah.
35:01:
But simply working together in collectively trying to solve problems like
35:05:
we did during COVID.
35:07:
Similarly, we can find other spots of, you know, weaknesses that we've got to do.
35:10:
But that collaborative effort is something, again, that the president would
35:13:
want to sustain.
35:15:
I mean, we're just quite excited that the president, of course, will continue in
35:21:
this term of office for another five more years, the reform program.
35:23:
We hope to achieve and successfully in the reform program on what we've set out.
35:27:
And of course, the new administration that would come in years from now would have to
35:31:
decide on
35:31:
what would be an important focus of them for economic growth.
35:35:
So exciting times, really looking forward to some of the responses.
35:39:
I think we've got to get the business people all aligned.
35:41:
We've got to get the banks aligned.
35:43:
Everybody's ready for the kind of investment that we hope to happen.
35:47:
And ultimately, what we want is high levels of growth so we can see employment
35:52:
and we can see investments.
35:54:
Absolutely.
35:56:
Jobs is what everybody is talking about.
35:58:
Rudy, thank you very much indeed.
36:00:
Rudy Dix, Head, Project Management Office in the Presidency.
36:01:
Thank you.
36:01:
Deanne Gordon, Strategist, Standard Bank Equity Research.
36:05:
Thank you, ma'am.
36:06:
for joining us for this conversation and all of you we've been listening thank you
36:13:
for listening in and until next time goodbye you
36:15:
have been listening to standard bank global markets in market insights your
36:20:
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