00:02:
The first half of 2025 has comfortably witnessed global markets volatility on a scale we haven't seen in many years, perhaps since the great financial crisis of 2008.
00:12:
And it doesn't really matter whether you are looking at currencies, commodities or the good old fashioned traditional asset classes, equities and bonds.
00:21:
So what does the view look like from inside the trading room? I am privileged today to host Selvan Kistnasamy, Head of Trading at Standard Bank CIB.
00:31:
Selvan, welcome.
00:32:
Thank you very much Godfrey, and it's a pleasure to be with you here today.
00:35:
It's good to take you away from your desk and, well, let's see how long I'm able to keep you here in mind as well as physical form.
00:43:
I joke of course. But seriously, how have you navigated these very elevated levels of volatility in these very first frantic nine months of 2025?
00:52:
Well, I guess some part of me is glad to be away from my desk given the franticness of markets over the last few days. But the story of 2025 really starts quite a few years before 2025. As early as 2021, as we found ourselves navigating the throes of the pandemic, we had identified that one key theme will drive markets, and that key theme happened to be what we call fiscal dominance.
01:18:
To put that very simply, the exorbitant level of debt and the debt that would be needed would be the key factor that drives our policy, markets and regulation would interact.
01:32:
You know, the thesis behind this was very simple. A decade of loose monetary policy in the form of quantitative easing together with low direct inflation had facilitated a record asset price inflation and growth in debt extension.
01:46:
The pandemic forced the policy response of fiscally-backed bank lending across the developed world at the time when rates were abnormally low relative to history.
01:56:
In that necessary move, the fuel was added to the fire. And it was very clear that these debt to GDP levels were headed towards an unsustainable course.
02:08:
This was bound to show up in increased term premia, in market volatility, in the higher nominal cost of borrowing that naturally has political consequences. And all of that is forming quite a powerful mix, which is making markets quite interesting to navigate.
02:24:
You know, whenever I chat to clients it's really about we have three choices to solve our problems. The first is to inflate our debt away. We tried that, we tried that for a period between 2021 and 2023. There were a few politicians who paid the price for that and we've tested the boundaries of how far we can take inflation before it becomes politically unstable.
02:49:
The other options included growing yourself aggressively. But each of our key economies in the world have tested their bounds of their growth. China has tested the bounds of its industrial capacity, the US the bounds of its consumer, and Africa the bounds of its debt.
03:05:
So the only viable alternative is option three, which is to reorientate trade capital and foreign direct investment to policy.
03:13:
Sure.
03:13:
And that interaction of policy with growth inflation is creating a unique set of outcomes in the world, which have to be carefully navigated if you are going to manage risk and if you are going to effectively generate the returns that you want to in quite a complex environment.
03:29:
Yeah.
03:29:
And those debt levels remain elevated.
03:32:
I was reading the other day a publication from the IMF talking about the fact that we're sitting at about 235% of public and private debt as a percentage of gross domestic product.
03:43:
So clearly a heavy burden still. So how do you navigate this? What tools do you use to get the kind of outcomes that you'd like to do for your clients?
03:54:
The short answer to that is in depth scenario planning.
03:59:
The market that we find ourselves in is very different to that encountered between 2008 to 2019, where it was really a synchronous development in monetary policy which made MPC decisions, market based decisions, and the expectations around inflation and earnings relatively easy to predict.
04:21:
And I say that cautiously because markets are never quite that easy.
04:26:
But what we find ourselves in now, in the myriad of scenarios that you're faced with, means that traditional economic relationships can fall apart.
04:35:
And that means appreciating how politics interacts with economics and with at times very bold politicians can impact these scenarios and allow these relationships to break down.
04:46:
It's fundamentally important that we understand it to navigate the world.
04:50:
And I imagine you also take lessons right from these crises. Like they say, you never waste a good crisis.
04:57:
So you look back to what happened in 1929, and then you look back to the other crises that we've seen through the years, including, as we were mentioning at the beginning, the 2008 financial, global financial crisis. What lessons would you say you have picked from this current bout?
05:14:
Where do I start? Because there's a number of sucker punches that we've had to take in order to try to make sense of what we see in front of us. But maybe taking it one step back to the scenario planning.
05:31:
Having been in the market since 2006, I can tell you that since 2010 to possibly 2019, we probably had some of the most boring trading markets.
05:45:
Sure.
05:46:
What I mean by that is that central bank policy and the synchronous development in central bank policy across the world meant that you could reliably understand how policy and economic growth and inflation was going to respond to key decisions that were being made.
06:06:
And you could reliably predict how equities would perform relative to bonds, bonds would perform relative to commodities, or commodities relative to credit and other asset classes.
06:17:
That's changed because the traditional economic relationships have broken down.
06:22:
So if you take it back to the way we looked at scenarios, and maybe the best way to look at this is through the example.
06:29:
Coming into 2024, the narrative around inflation and fiscal policy and what fiscal policy meant for inflation really started building. And that was about three to four years into the recovery. And coincidentally, this also aligned with the number of elections that were taking place across the globe.
06:47:
Now, we anticipated an extended, what we'd call late reflation cycle. And what this meant was, is that you would have to tolerate higher economic growth or you'd be seeing economic growth expand, whilst at the same time interest rates were rising beyond a level of comfort.
07:07:
The traditional trader would be very discomforted by that.
07:12:
So understanding the political and the credit impulse through an election cycle and being able to understand that you still needed to be risk constructive despite rising rates was something critical for us to learn and unlearn as we navigate to that market.
07:29:
But once again, those conversations and those robust discussions help you get to the right point. Once we passed the US election, I think one of the key things we understood was that people will rely on their economic strength in order to make bold moves in the geopolitical space, which is certainly what we witnessed on Liberation Day.
07:53:
And there we witnessed characteristics of deflation, so EM and global risk-off, higher volatility, lower yields, widening credit. We deliberately thought that the dollar would strengthen through that cycle, because that's what we've always been accustomed to.
08:09:
Yeah, flight to safety.
08:10:
Flight to safety. But what surprised us was the weakening of the dollar through what was quite a meaningful crisis from a global point of view.
08:22:
And what that meant to us was that the nature of the safety trade was changing, partly because of policy, partly because of structural issues, and definitely because of the impact of debt in the system.
08:35:
Sure.
08:37:
And once those tariff pieces or the tariff narrative was relaxed, we then find the situation that we find ourselves in today, which is the stagflationary narrative, i.e., lower growth, employment markets taking a bit of a hit, but inflation really being sticky at levels that make us a little bit uncomfortable.
08:59:
We know that the typical response to that should be an increase in rates. But we see the problem that central banks are now having to deal with.
09:08:
And maybe using the US and SA as an example. We would never have thought or we wouldn't have guessed that we would have seen the potential for a declining rates environment amidst sticky inflation scenarios both in the US and in South Africa.
09:26:
But is that politics trumping monetary policy?
09:29:
And that's the key learning from this.
09:31:
So if you were a trader, you'd be saying rates have to go up because inflation is sticky, not quite at the target levels of 2% or the new 3% that we're intending to move towards here in South Africa.
09:46:
So the political nexus is definitely something that needs to be considered. The increased focus on the consumer, the person in the street, all of which becomes national imperatives, if you're able to navigate through this crisis.
10:02:
It's very important that you pay attention to long-dated inflation expectations in the scenario because any unhinging of this could pose quite a different set of problems that you would have to navigate.
10:16:
But ultimately, looking at lower rates with sticky inflation is something that people probably wouldn't have predicted they'd have to face maybe a few years ago.
10:26:
So these are the types of things you have to learn and unlearn. But purely paying attention to an economic textbook or a traditional finance model is something that will leave you exposed and will leave you, you know, looking for some more.
10:40:
So let's think a little bit in terms of the continent here, in terms of what it means for Africa, given the environment you have painted and the difficult choices that you have suggested are on the table.
10:54:
Are we talking opportunity here in Africa? Are we talking perhaps a greater level of difficulty than we have seen already?
11:02:
So, I guess if we looked at the key themes that I just discussed, there's three parts of it which become quite important for Africa, both from a corporate, institutional and a general political point of view to understand.
11:21:
You have a weaker dollar, you have lower short-term rates and you have steeper yield curves, specifically in the developed market, as the debt burden now starts to build into the policies that will have to be implemented in key countries.
11:44:
That is quite a tailwind for the continent. And what you find is that countries who have been able to put a lot of effort into reforming, taking the pain from their over indebted systems and generally taking a more responsible outlook in their fiscal and their monetary policy management, are well poised to take advantage of these trends that are emanating from the developed market.
12:18:
I'm hearing Ghana. I'm hearing Zambia.
12:23:
You're definitely hearing Ghana, I think Zambia has been one of the countries where we've seen a bit of weakness right now. It's been one of the weakening currencies amidst a backdrop of strengthening currencies across the continent. So maybe less so on the Zambia scenario.
12:40:
But essentially what we're looking at, and Ghana is certainly at the top of that list, we just fear that the opportunity might have passed us.
12:48:
If you've restructured your debt, if you've managed your FX responsibly and transparently, if you've maintained tight monetary policy stances amidst a falling inflation backdrop, given the scenarios and the crises that we've had in the past, and if you've really strengthened that investment appeal to offshore markets and been able to trap that FX through your banking and your financial system, then you are well poised for a huge rerating in rates and FX.
13:20:
Yeah, I'm hearing two more countries.
13:23:
You probably are. How good's your guessing game?
13:26:
Let's see, let's see. So I'm hearing Nigeria.
13:29:
Yeah
13:30:
I am hearing South Africa.
13:32:
Definitely, definitely. And Egypt.
13:34:
And Egypt.
13:35:
And Egypt.
13:36:
So what we found is that, you know, just look at the Nigeria example relative to what I've just mentioned.
13:43:
Yeah.
13:44:
The re-float to the naira in 2023. They tightened monetary policy and their OMO framework, which is the short-term repo instruments. They started republishing their net FX reserves. They introduced certain functionality on B-Match on the FX trading platforms to create a market that was visible on an interbank level.
14:08:
They unified the onshore and the offshore markets and, very importantly, they allowed the offshore banks to participate in their short-term instruments. And they allowed remittance flows to flow into the interbank market.
14:20:
Yes. And they're beginning to make a difference.
14:21:
And it's a huge change that you've seen in the FX reserve buildup in the stability of the currency at these 1 500 levels that we've witnessed over the last few months. And you're seeing what that means to investment flows from offshore investors.
14:37:
Yeah. I still want to talk also about South Africa because all those things that you're saying are similar to a degree to what South Africa has been doing.
14:46:
We know monetary policy in this country has been absolutely one of the better examples of institutions that work, but at the same, time growth remains on the horizon.
15:00:
Yes, look, we're always kicking the can down the road in our growth expectations and there's a lot of work that has to be done before we get there.
15:10:
But I'm quite confident that the right seeds are being laid to get us to a point in the future where we can ultimately benefit from what I believe is quite a robust implementation of monetary policy in South Africa.
15:22:
The combination of policies around Jafekra, the changes in the monetary policy framework made in the last few years, the intent to move towards a 3% inflation target, are all powerful forces that leave us well poised to benefit from those themes that I just mentioned around the weaker dollar, lower short term rates, et cetera.
15:45:
And we've certainly seen that. We've seen the move in SA rates lower. We're seeing people now starting to question whether they needed to move to longer duration instruments in the country.
15:57:
Right. These are institutional investors.
15:59:
Institutional investors, offshore especially, and whether they need to reposition their duration and their points around the curve where they want to take exposure, given the steepness of our yield curves.
16:11:
So I think we've laid the foundation for a stronger currency, for lower rates, and then for the infrastructure initiatives to take place around this in order to bring that economic growth to the extent that our policy changes in a manner that's growth constructive.
16:29:
So I think we're well poised for stronger currencies, lower rates and an overall positive economic backdrop in the future.
16:36:
I hear you and I want to be positive with you, but I fear our politics come 2026 could well maybe change that scenario again. But conversation for another day. What about Egypt?
16:50:
Egypt; very similar to some of the reforms that you've seen in the Nigerian, the Ghana context though it comes with its own nuance.
17:01:
The Egyptian pound was re-floated in 2024. Similar approach, tighter monetary policy, tighter monetary policy rates and the OMO, the short-term bills framework.
17:16:
But they also privatised state enterprises, using that as the tool to capture the FX flow and the FX split into the country to reshore and to poise themselves for the next phase of growth that was facilitated by those initiatives.
17:34:
So, you know, different shapes of policy but with the same intent. I mean something similar in Ghana. You know, you definitely saw post the bond restructure, the tighter monetary policy framework, impact them positively.
17:49:
But the reappropriation of artisanal gold mining flows through the central bank had led to a significant FX reserve build up, and you saw what the currency has done in Ghana move from 16 to just above 10.
18:02:
We're sitting at just above 12 at the moment. But that move, in and of itself, is reflective of what you can see in other countries.
18:11:
Very interesting case study, Ghana. You've talked about the big boys. What about the smaller guy? Because we do know there are some that are in real difficulty.
18:20:
I mean, we all know about the case of Lesotho attracting the initial 50% tariffs from the US, then of course we've got here, next door, in Botswana.
18:30:
Yeah. So look, there are pockets or there are countries, especially in Sub-Saharan Africa, that definitely have issues.
18:40:
I mean we're seeing, we've been paying very close attention to Mozambique since the political strife post elections late last year. You mentioned Botswana and the impending impact of lower diamond prices.
18:58:
Yeah. So there's a couple of downgrades.
19:00:
What that means for the fiscus, the downgrades, the health crisis that follows as payment and FX liquidity then becomes an issue.
19:09:
You're also seeing very similar issues in Malawi. Zambia is probably through its worst post their drought. The inflation that that brought in and the general sort of declining affordability of its consumer.
19:30:
But there are opportunities that we need to focus on. And I think that, for one, if you look at it from a global context, there are, there are various agreements or arrangements that are now due to change.
19:47:
We've seen the impact of US aid or the rewinding of US aid and what that's meant for countries like Malawi.
19:54:
Sure.
19:55:
And it's time to harness our financial sector in order to understand what the bridge financing needs for these countries would be.
20:03:
Explain?
20:04:
So, there will be funding needs in various countries, which now have to be met by the African continent as opposed to a reliance on US aid. There will be funding gaps in the interim till the new packs are established globally.
20:26:
But till you get to that point, you also have to understand that there are a number of opportunities globally—specifically the themes around AI.
20:34:
Sure.
20:35:
Specifically themes around batteries, behind, you know, power shortages that will be caused by AI, and also the green hydrogen sort of stories that are popping up, which will require very specific commodities from these countries to be mined and exported.
20:56:
Just think about cobalt in the DRC in Zambia. Lithium in Zim, Mozambique and Namibia. Graphite:—Mozambique and Tanzania. Copper—critical for wiring, chips, conductivity in the AI infrastructure. Uranium—Namibia, South Africa. Nickel, manganese—South Africa, Gabon, Cote d'Ivoire.
21:20:
All of these are vital minerals and resources that can be tooled to rebuild FX reserves, to rebuild the dollar profiles of these countries and to reorientate their economies in a very different way, which hasn't been the case before.
21:36:
So despite the need for funding, despite the need for bridge financing, if we are able to understand very specifically what these themes globally mean for our African countries, specifically the smaller ones, we are standing at a point where we could potentially shift the imagination and reorientate economies towards some of the bigger global themes.
21:58:
But they require the right leadership, political I have to say. They also require the right policies. Are you seeing, are you suggesting that there are signs that that could be the case?
22:11:
I think you referred to it earlier. Don't waste a good crisis.
22:15:
Indeed, indeed, indeed.
22:17:
It may have been when I walked into the room.
22:23:
I do think that it needs to be led. And because of the fact that many of these countries are being faced with crises, it often takes the attention away from the bigger objective.
22:37:
But herein lies the opportunity for the Pan-African organisations to really step in and drive a new paradigm for these countries, and a paradigm that shifts them to sustainability and affordability.
22:50:
Yeah, interesting you say that because I was in Algiers where there was the Intra-African Trade Fair. And what we certainly saw was a very, very bold intervention in terms of trying to get Intra-African trade going.
23:02:
Yes.
23:03:
Talks, panels, policy discussions, hopefully making a difference one day. But we need.
23:09:
So maybe it's happening a bit earlier than we think it is. And I think the concepts of regional integration and intra-intercontinental trade have been around since the early 90s.
23:22:
I guess each of our forefathers had a different way of approaching it. Some advocated for deep integration continent wide, others focused on regional blocks.
23:35:
I think the idea around the regional blocks makes a lot of sense, but it's good. The pockets of this thinking is beginning to emerge. And now you have the carrots and the sticks in order to make these policies come to life.
23:47:
Indeed.
23:47:
We certainly hope what we are seeing in terms of the evidence coming through from the AfCFTA will begin to show up in numbers that suggest that we move beyond the 15% in traffic and trade that we have currently versus the 50% in other regions of the world.
24:05:
But we need to move on and wrap up. But before we do so, I need you to tell me if you sleep.
24:13:
Because I remember talking to one fund manager and he was telling me, Godfrey, my phone is always by my side. I keep it on all the time. Do you sleep?
24:22:
Yeah. I tell my peers that this is probably the year maybe the last 18 months that I've had the least sleep because of the amount of things that are going on in the world.
24:35:
Sure.
24:36:
And despite our rigorous approach to scenario planning and understanding our risks and making sure we cater to every unforeseen or potentially unforeseen event, you're never going to imagine the full set of probabilities.
24:51:
So, there are things that will naturally keep you awake at night. And I think for me, I mentioned earlier how we characterise the different states of the world. Deflation, reflation.
25:07:
A move too severely into either a deflationary scenario or a stagflationary scenario at the wrong time is something that's very worrying, especially given the level of debt in the world.
25:23:
If debt is too high at the time that a black swan arrives on our doorstep, we're not necessarily going to have the same tools to respond as we did over the pandemic because debt is very high. Does that force upon us an environment where prescribed assets and capital controls become a lot more severe?
25:45:
That worries you?
25:46:
That worries me.
25:49:
If it happens at a time when inflation is rising, long dated inflation expectations are becoming unanchored and rates are starting to move higher, do we have the capacity for, do we have the tools from a rates perspective in order to deal with that at the time that such a crisis might arrive?
26:15:
And at that time you would expect the boundaries between fiscal dependence or fiscal independence and monetary independence to be really blurred. What does it mean for the political construct in the long term and for the potential debt trajectories of various countries?
26:34:
So the timing of the next crisis, which invariably happens, is something that keeps me awake at night because there are scenarios in that whole mix that I just described earlier where the policy responses has to become so aggressive that it makes it very hard to see a world where risk assets, risk prices and consumer health are able to sustain themselves in the way that they have for the last couple of years.
27:03:
As a final question, would you say the current conditions that we are in in the world enable the policymakers to be in a position where they deploy the right tools and where they've got the right tools to respond to such a crisis if it did take place?
27:24:
Or are we shorn of those tools because of the actions that have been taken now to contain the shock that we've had from the upheaval in trade and of course the continuing impact from COVID 19.
27:40:
I definitely think we have a broader toolkit than we've had in the past between quantitative easing, fiscal spending, fiscally backed bank lending, and some form of political or policy driven incentives. To create flow of funds into home countries.
28:02:
We definitely have a broader toolkit than we ever had before. The problem is that the interests of different nations diverge and you're not going to have a synchronous response to crisis or to crises.
28:14:
And that takes away a bit of the ammunition that you have to rise out of a crisis as quickly as you could before and to have a prolonged recovery in the way and the shape that you've had over the GFC, or over Covid for that matter.
28:29:
Selvan, it's been fascinating hosting you.
28:32:
Thank you very much, Godfrey and thank you for your time today and for the invite.
28:37:
Thank you. Selvan Kistanasamy, Head of Trading at Standard Bank CIB. I hope you picked up some things that will help you in arriving at the correct decision in navigating a very complex world that likely is going to get even more complex.
