Portfolio Manager, Peter Brooke, shares his latest weekly perspectives, this week he unpacks the recent State of the Nation Address (SONA) and macroeconomic indicators that bode well for company performance and emerging market currencies.
Peter Brooke 00:00
Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 7 of 2022, and I should really talk about the State of the Nation.
It was really just a bit dull. The excitement of CR17 has been replaced by a sense of boredom. The reality is we're very lucky to have a competent president. And it was an extraordinary speech in the context of an internal re-election year. If I quote the president, "we all know that government does not create jobs, business creates jobs". To reaffirm a pro-reform, pro-business agenda as your term of office comes due within the ANC, shows real bravery. The president continues to centralise around his office to try and speed up delivery, while the rest of the cabinet dawdles.
There have been some big wins in the last year, especially in energy, where we remain bullish about the private sector's ability to solve this problem. Just imagine if the private sector was able to take over struggling municipalities and allow the vast budget to actually flow through to service delivery.
The upcoming budget is something to look forward to, as the boom and profits will mean better takes take and a lower than forecast deficit. What's interesting is that the better profits is not just due to the mining recovery, but it's very broad based. As the trading statements pour in, the evidence is compelling. Every week, a different South African company is delivering a positive surprise, resulting in the share price spike. My colleague Arthur Karas finds it addictive. For instance, just month to date, good numbers from Bidvest, Nedbank, and Sappi, to name a couple, have led to price gains of 13%, 13%, and 23% respectively.
Another interesting macro phenomenon which will come up this week is the monthly inflation numbers. Our inflation is expected to come out at around five and a half percent, dropping down from the December numbers. Now, this contrasts with the seven and a half percent inflation in the US. While many emerging markets were unable to afford Covid subsidies, they've had lower growth as a result, but also lower inflation pressures. These better inflation differentials for many emerging markets helps explain why emerging market currencies have been so well behaved into a Fed hiking cycle. The rand in particular has done well, helping drive South Africa's strong relative performance.
I hope you enjoyed this perspective. And I'm surprised be looking forward to a budget. Until next week.