By Dave Mohr, Chief Investment Strategist, and Izak Odendaal, Investment Strategist at Old Mutual Multi Managers (OMMM).
Monday’s rare supermoon – where the moon will be the closest to the earth at any point between 1948 and 2034 – appears to be the apt metaphor for this year’s string of unlikely events. Some will say it started when the odds on Leicester City winning the English Premier League went from 5000/1 to 1/5 in May.
Then Brexit happened, the United Kingdom’s withdrawal from the European Union membership, followed by Donald Trump’s election as president of the United States.
As unlikely as his candidacy seemed a year ago, he clearly tapped into some of the same anti-immigration, anti-globalisation and anti-establishment discontent that drove the Brexit vote.
It is ironic, since the UK and US economies have outperformed most other developed countries since 2009, and have relatively low unemployment. Crucially, though, both have higher income inequality. Looming elections in Europe – Italy, Austria, the Netherlands, France and Germany –will have key votes over the next 11 months, and these will now draw much closer scrutiny.
There is clearly unhappiness with the liberal global economic order that has been in place since the fall of the Berlin Wall in 1989.
Limited market fall-out so far
Despite being a shock, the Brexit vote had little lasting impact on markets (apart from the pound, which remains very weak). As it became clear during the night that Trump would win, the immediate market reaction was a sell-off on Asian equity markets, a plunge in the Mexican peso (Mexico is heavily reliant on free-trade access to the US economy), and falling US equity futures.
However, by the end of the day US equities closed higher, reversing the early losses. The following day, Asian equities rebounded sharply. As with Brexit, this cautions against a knee-jerk reaction to unexpected events. Few predicted a Trump win, but those who did warned of a market correction.
This hasn’t happened, and illustrates why it is so difficult to build portfolios around specific events where the outcome is uncertain even if the timing is known (elections, referenda, ratings announcements). Sensibly diversified portfolios are still better than concentrated fearful ones.
The US is of course a much bigger economy than the UK, and what happens there truly has global implications. Trump’s campaign promises to block immigration and tear up trade agreements would be negative for the US and the global economy. On the plus side, he also promised to upgrade US infrastructure. US government infrastructure spending as a percentage of gross domestic product is close to a 60-year low.
By the end of the week, US and other developed equity markets were up strongly. The equity market is therefore pricing in a stronger economy and more business-friendly economy (with lower taxes and less regulation) under a Trump presidency.
However, the longer-term implications are unknown until we have a better idea of what his policy proposals are and if he will get backing in Congress.
As far as the global economy and markets are concerned, the most important building in Washington, D.C for now is not the White House but the Federal Reserve’s Eccles building four blocks to the South West.
Aggressive interest rate hikes are much more likely to cause a US recession and deep bear market than Trump’s policy changes. The likelihood of a rate hike in December implied by futures markets fell from 80% to 50% on the election news, but have risen since.
Barring a change in the underlying economic reality, the Fed is still expected to hike interest rates gradually without upsetting the markets or the economy.
Since the Trump campaign attacked the Fed for its failure to raise rates, the longer-term outlook is unsure. However, the Fed is an independent institution with a mandate from Congress to achieve stable prices and full employment. Also, Janet Yellen will stay on as Chair until 2018 and will remain a board member until 2024.
Therefore, abrupt monetary policy changes are unlikely, but it does appear that there might be a shift in emphasis away from using low interest rates to stimulate the economy to using fiscal policy (tax cuts and government spending).
This would be welcome and is exactly what many prominent economists were calling for (ironically, most of them were also stridently anti-Trump). However, it also implies more government borrowing and potentially higher inflation and therefore upward pressure on bond yields.
This is clearly what the market sees: The US 10-year treasury yield rose above 2% for the first time since January. However, this could be an overreaction, since no-one knows exactly what Trump’s plans are yet.
What does all this mean for us in South Africa?
To continue with our metaphor, the supermoon is expected to result in extreme tides. As much as we grapple currently with political uncertainty and the fall-out from policy own goals, South Africa’s history also points to the influence of big global tides on our economic shores, specifically on commodity prices, sentiment towards emerging markets and global capital flows.
Typically the risk is always there that the heavily traded rand sells off with negative consequences for the local inflation and interest rate outlook. The rand lost 5% against a US dollar that firmed against most currencies. However, the rand had strengthened quite a bit prior to the election.
On the positive side for the rand, commodity prices have firmed up this year as China’s economy seems to have picked up some speed (with the key manufacturing gauge in positive territory again).
There are concerns that the US could hike tariffs on Chinese imports, but starting a trade war with the world’s second largest economy would be an extreme move even for Trump.
China can also hardly be called a currency manipulator when the falling yuan is accompanied by falling, rather than rising, foreign exchange reserves. It is clearly capital flows rather than government buying of dollars that has pushed the yuan to a six-year low.
More infrastructure spending in the US could also be positive for commodities. Trump has promised to dial back America’s commitment to fighting climate change, which is supportive of coal and energy producers, but obviously bad news for the environment.
However, sentiment towards emerging markets has taken a knock, given their general reliance on trade. South Africa’s preferential access to the US market under the African Growth and Opportunity Act (AGOA) was recently secured until 2025.
No African country makes it into the top 30 list of US trading partners and there is no reason to expect any anti-trade backlash against AGOA.
Moreover, while the US is an important export market for us, South Africa exported more to the BLNS countries (Botswana, Lesotho, Namibia and Swaziland) than to America in 2015. China was our single biggest export destination. However, other emerging markets are very dependent on exporting to the US.
Finally, capital flows are greatly influenced by the risk-free rate – if US Treasury yields rise further, it could place pressure on the rand and local rates, and higher yielding emerging market assets in general. However, if US yields are rising on hopes of faster growth, that would also be a good sign for the global economy.
Chart 1: Impact on US markets
Chart 2: Impact on South African markets
Business Linkages And Investment Readiness
The Africa Women Innovation & Entrepreneurship Forum (AWIEF) is hosting its flagship Growth Accelerator Programme for 2018, sponsored by Nedbank.
The Africa Women Innovation & Entrepreneurship Forum (AWIEF) is hosting its flagship Growth Accelerator Programme for 2018, sponsored by Nedbank. AWIEF is seeking 25 ambitious, innovative and committed early-growth-stage South African women entrepreneurs, from a variety of sectors, looking for support to scale their businesses.
Access to finance is the most cited challenge to the growth of women-owned businesses in Africa. Bankability and investment readiness are major impediments to attracting business finance.
This is an intensive six-week programme designed to support participants with the business modelling and growth strategy required to scale their enterprises, become investment ready and develop entrepreneurial leadership. The programme will cover:
- purpose and values
- target market, competitive landscape and value proposition
- delivery model
- financial modelling
- conduct a creative force
- growth strategy
- financing for scale
- pitch training.
Nirmala Reddy, Senior Manager of Nedbank Enterprise Development, says: ‘We support initiatives such as this in line with our pledge to help clients see money differently, which is aimed at making a difference in South Africa, not just for women and children and business, but also for communities throughout the country. The bank strongly focuses on the development of female employees and black-women-owned suppliers, and this can be seen through our development and training programmes. We are also proud that women make up 62% of the workforce at Nedbank.’
The 2018 AWIEF Growth Accelerator, with its first 25 participants, is implemented as a build-up programme that will culminate at the 2018 AWIEF Conference, Exhibition and Awards event taking place on 8 and 9 November at the Cape Town International Convention Centre, where participating entrepreneurs will pitch their business to an audience of investors, business leaders and corporate decision-makers.
The three best ventures stand to win monetary prizes from AWIEF and financial management advice from Nedbank.
The programme details are as follows:
- Dates: Starts on 17 September and culminates on 8 and 9 November 2018
- Location: Cape Town and Johannesburg
- Participation fee: Free
Businesses must be:
- in a post-revenue phase;
- scalable and innovative ventures;
- in operation for not less than two years (ideally three to five years);
- owned or led by ambitious and committed women entrepreneurs; and
- seeking investment or funding to grow.
If you are interested in participating, click here to apply. Applications close on 31 August 2018.
Investing In Women Key To SA Socio-Economic Development
Investment in women’s empowerment delivers long-term socio-economic returns, says Novartis. Women’s networks and mentorship engagements can help unlock personal and career success.
Empowering women has long-term positive socio-economic impacts, making women’s empowerment, career development and mentorship programmes a compelling narrative for companies.
This is according to Sibonile Dube, Head of Communications & Public Affairs at Novartis South Africa and a mentor at Phakama Women’s Academy. Marking the start of national Women’s Month, Dube cites Bain & Company research into how and why the career paths of South African women and men differ, which found that in 2017, 31% of South African companies had no female representation in senior leadership roles. The research noted that the Businesswomen’s Association of South Africa (BWASA) census on women in leadership indicated that 22% of board directors were women, but only 7% were executive directors. Only 10% of South African CEOs and only 2.2% of JSE-listed company CEOs were women.
“Considering that recent research by MCSI concluded gender diversity on the board has significant benefits for both productivity and profits, South African enterprises need to become more proactive about supporting women’s empowerment in the workplace,” says Dube. But Dube adds that while formalised empowerment and mentorship programmes are important, South African women hold some of the keys to helping both themselves and other women unlock success.
She outlines three key factors that hold women back from corporate and entrepreneurial success, and how these challenges can be overcome:
Lack of confidence
A key factor holding women back from achieving their true potential in the workplace – and as entrepreneurs – is fear and a lack of confidence, says Dube. “As women, we often undersell ourselves – we underestimate our potential, our power and the amount of influence that we have. In contrast, men are typically quite confident in themselves and their capabilities,” says Dube.
The Bain & Company survey of over 1000 women found an apparent loss of confidence amongst women in junior- and middle-management positions that they could rise to the top. At this level, some respondents noted political imbalances that were difficult to navigate; while their male colleagues had access to a sponsor or mentor (normally of the same sex and colour) to help navigate these issues.
Dube believes women need to become more proactive about empowering themselves, equipping themselves with a broad range of skills, and actively working on building their self-awareness and self- esteem. “Building skills goes beyond developing academic or technical expertise – we need to work on our relationship skills and communication skills, because human relations are crucial for success in a setting where you are looking for influence and significance.”
“Dealing with fear and lack of confidence is important, because this enables us to have relevance and contribute more meaningfully to in the workplace and in business,” says Dube.
Lack of support networks
More than women, men generally back one another be it in corporate or in business deals and this has supported their career success a lot, says Dube. “Having a network is important – it is through these networks that opportunities are shared and support is gained. Having a strong network of people that back your career becomes an effective reference point especially in times of challenges. And through these networks, people are also able to find mentors.”
Dube believes mentorship is a crucial component of career success, offering both mentor and mentee opportunities to learn and grow. “We need more mentorship. With mentorship, training and coaching, women can actually pull out some of the strengths they possess which they may not be aware of. One is challenged and pushed to aim higher,” says Dube.
Bain & Company research found that sponsorship of individuals, especially at the mid-management level, ensures that contributions and performance are recognised and attributable to the individual. Often women, particularly in middle management, feel marginalised, ignored or simply worn down by trying to get their efforts recognised.
Dube, who mentors a number of women, says mentorship can be formalised through a corporate career development programme, but can also extend to informal and virtual mentor-mentee relationships. “You can be guided by simply reading the books, reading articles and watching videos and talks of inspirational leaders anywhere in the world on social media,” says Dube. Dube points out that good mentorship can be a mutually beneficial in the exchange of ideas and meeting of minds. “In an effective mentor-mentee relationship, reverse mentorship takes place. In an era where we now have four generations in the workplace, the digital and tech savvy younger generation have a lot to offer to the rest,” says Dube.
Poor Health and Wellbeing
In order to cope and remain competitive in the workplace, women have to ensure they take care of their health and maintain some resilience especially when pressure mounts. Recently, there have been a lot of conversations about mental health in South Africa. According to the World Health Organization (WHO), gender is a critical determinant of mental health and mental illness. Gender determines the difference in power and control that men and women have over the socioeconomic factors of their mental health and their exposure to specific mental health risks.
“Women are under immense pressure to perform in various spheres of their lives. Juggling a career, motherhood and marriage or a relationship can be emotionally and physically taxing to the extent of affecting one’s health, especially mental health. It is therefore imperative that women take good care of their health and wellbeing amid the demands of a competitive and fast paced lifestyle presented by the demands of modern society,” says Dube.
Depression is not only the most prevalent women’s mental health problem but may be more persistent in women than it is in men. There is more research needed to determine the reasons for this and what can be done to address it.
This Women’s Month, Dube says women should feel encouraged to be proactive about their own career development, and about helping other women to grow – both personally and professionally.
“As women we should be firm believers in one another. We hold the keys to opening doors for other women. By creating a support structure for one another, we can create phenomenal opportunities to make a difference for fellow women, with the aim of creating leaders and catalysing empowerment that has a ripple effect, benefiting all of society and the economy as a whole. Studies have revealed that women reinvest up to 90% of their income into their families compared to men who reinvest 30-40%. This has far reaching socio-economic gains for any society,” concludes Dube.
Leaderex Drives Digital Transformation Agenda For 2018 Summit
Leaderex, Africa’s largest gathering of business leaders, professionals and entrepreneurs, returns to Johannesburg on 4 September 2018.
Building on a successful debut in 2015, the organisers, Leader.co.za, in association with the JSE and leading think tanks, will host 250 masterclasses on key priority areas to drive digital transformation, including agile leadership, innovation, fintech and blockchain, AI, IoT, ecommerce and the future of work.
“Our programme has been designed around peer-based learning, allowing participants to gain practical knowledge from the trenches, engage with the best in the business, and thrive in a disrupted world,” says Leader.co.za.
Over five hundred CEOs and industry leaders will share actionable insights and advice on the day, representing one of the largest collaborations of its kind in the country.
Delegates will have the opportunity to connect with incubators, accelerators and start-up platforms, explore MBA programmes and business schools, and participate in one-on-one sessions with respected coaches and consultants.
South Africa’s lack of a savings culture will be another talking point, and investment vehicles, from tax-free savings to ETFs, will be thoroughly unpacked.
“We are pleased to be working with Leaderex again this year because we have seen the impact that the event has had since inception,” adds Mpho Ledwaba, Head of Marketing at the Johannesburg Stock Exchange (JSE).
For executives and entrepreneurs looking to unlock value through new technologies and ways of thinking, Leaderex 2018 represents a highlight on the business calendar.
Tickets can be purchased online at www.leaderex.com.
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