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Insights from Jeremy Gardiner on the impact of Covid on the markets

In Chinese Astrology, the year 2020 is the Year of the Rat. The rat is known for being inquisitive, shrewd, and resourceful, and is associated with new beginnings and renewals. This Year of the Rat has undoubtedly lived up to its name.

Recently, Jeremy Gardiner, from NinetyOne, shared his insights with the Chartered Wealth clients around the impact of Covid on both the global and local economy. In South Africa, we already had structural, social, and economic problems, and the repercussions of Covid-19 have made these stark realities even worse. Jeremy Gardiner, however, has a unique ability to point out the truths, dispel rumours and remind us what an incredible country we live in, something we are inclined to forget.

Global Impact

The major risks to the global economy are now inflation and debt. A staggering 18 Trillion dollars of stimulus has been injected into the global Fiscus, pushing global debt to GDP to a terrifying 322%.

With the impending US elections, it was noted that Jimmy Carter is the only President to be re-elected during an economic recession. Currently, the US unemployment rate is the highest in 80 years, with 20million people unemployed. With this in mind, Donald Trump has a mountain to overcome, and the initial polls are showing a 60%/40% split in favour of Joe Biden. From a planet perspective, Joe Biden is a better candidate, from a financial market’s perspective, a Trump victory is arguably a better outcome.

Local Impact

Consumer confidence dropped to a 35-year low, taking us back to 1985: a year when we were in the depths of Apartheid, the UN had imposed severe economic sanctions on us, and we were on the verge of a civil war.

From now on, South Africa needs policy certainty to spur growth. As much as 60% of our tax bill is funding salaries of government employees who make up 2% of the population. The government needs to push back harder on SOE funding and government wage bills.

Eskom is our most acute growth constraint. Like many problems in our country, the root cause can be traced back to the Jacob Zuma era. The Eskom budget is divided between maintenance and procurement – procurement has been preferential to maintenance because it is easier to corrupt. The end result for us is load shedding.

South Africa was forced to accept a loan from the IMF. Despite popular belief, this is a good thing. The repayment terms are 1% compared to 7% in the market, and we have to adhere to the emergency budget with a promise to cut government spending and tackle SOEs.

Cyril Ramaphosa rather courageously said, “the ANC does not stand alone in the dock on corruption, but it does stand as the accused number one”. The NPA is now independent, which means that should evidence of corruption emerge it is now challenging to prevent charges being lodged against anyone accused. This is a significant difference to the Zuma era. The wheels of justice are finally turning.

Apart from a few off-piste scenarios around the cigarette and alcohol ban, how have we dealt with this crisis? We have had 200 days of lockdown, resulting in 25% less virus-related deaths. Importantly, it must be noted that poverty also kills, and what is a more significant risk, Coronavirus, or an additional 3 million people without jobs?

Prescribed assets are very topical right now. The good news is there has been no mention of forcing fund managers to hold specific levels of government stock. They want the investments to be channelled on a voluntary basis – which is fine as long as it is properly structured and yields a competitive commercial return.

On a positive note, our Citrus growers are having a bumper year. Vitamin C is considered a solution to the virus. Our maize crops are also having a great year which brings down inflation. We do, however, need to resuscitate our tourism – we have to be brave and open up our borders.

From here on out, recovery is up to all of us. According to Sweden’s top scientist, the only reliable, proven way to combat a virus is to wash your hands and practise social distancing. We don’t have an unlimited printing press like the US and Europe. But we do have resilience which is engrained deep within our souls. We will rise above this, like we have before and come out a better, stronger nation, with the realisation that we are all human, and we are all vulnerable. Use this time to be with your loved ones and change things in your life that previously you may not have had the courage to do.