Portfolio Manager, Peter Brooke, shares his latest weekly perspectives, this week supporting a positive outlook of the South African economy and its investment opportunities following recent GDP and unemployment data progress.
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Peter Brooke 00:00
Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 23 of 2022, and I want to talk about the South African economy.
00:09
The Q1 GDP figures have just come out and grew 3% year-on-year, which is better than consensus. So, good news. Admittedly, Johann Els was expecting a good number, so this wasn't a surprise, and the Q2 numbers will slow down due to the floods in KZN. However, I do find the general reporting too negative. Bloomberg wrote: "South Africa's most industrialised economy remains stuck in its longest downward cycle since World War II and hasn't grown by more than 3% annually since 2012. Except, of course, last year, where we grew by 4.9%."
And the same thing happened with the quarterly unemployment numbers. This weekend, the Sunday Times headline was "Manufacturing throttled by loadshedding and rising costs", which is then actually an article about unemployment or the employment data, where South Africa added 350,000 jobs and had the first decline in the unemployment rate in seven quarters. Now, I think everyone knows that South Africa's high unemployment rate is essentially a crime against humanity. So, can't we have a little joy when it drops?
01:22
We're actually in the middle of our biannual themes process, and the team has just had a debate on South Africa's secular outlook. So, we're looking at a longer-term perspective than watching quarterly data. Now, as you might imagine, this can be an emotive topic, and they studiously tried to look at the facts to reduce bias. What was clear from the discussion is that there has been improvement in South Africa. Operation Vulindlela has delivered the spectrum allocation. And we're allowing the private sector in to solve our electricity and transport problems. And this is a very deliberate strategy from the National Treasury, which has identified these as key blockages to growth. But to get further growth, they also need an increase in confidence, which in turn leads to increased fixed investment, an area that South Africa is under indexing in. Therefore, it must be incredibly frustrating to see improvements like we've just had with a decline in unemployment and an increase in GDP growth dismissed so readily.
As a team, we have taken a more positive view - we had taken a more positive view on South Africa and the potential recovery from Covid. This has stood our clients in good stead and our funds have outperformed. We continue to see some opportunities to invest in South Africa, although the upside has now reduced by the strong performance. But our latest analysis does give me some comfort about the South African government bonds I bought for our clients recently.
02:45
I hope you enjoyed this perspective. Until next week.