ECONOMY Stronger tomorrow than today

Schalk Louw points out those fiscal and monetary measures that will likely soften the blow to South African consumers as the country navigates the current crisis.

Some of the greatest success stories all have one thing in common, and that is that hardship isn’t used as an excuse, but as motivation – the motivation to focus not so much on current circumstances, but rather on the opportunities that tomorrow may bring.

Famous sports stars like Muhammad Ali (boxing), Niki Lauda (Formula 1) and Tiger Woods (golf) would not be as famous as they are if they didn’t rather focus on a brandnew day during times of hardship.

Woods is a shining example. Since winning the US Open in 2008, he regularly featured in news stories, and not for good reasons. By 2014, his back was so badly injured that his chances of playing golf again became smaller by the day. But Woods said, “The greatest thing about tomorrow is I will be better than I am today.” And boy, was this true. Eleven years after winning the US Open, Woods made one of the best comebacks in sporting history by winning the US Open again in 2019.

This somewhat longer introduction fits in quite well with our current state of misfortune. To say that Covid-19 has plunged humans into a state of fear is a complete understatement. And I’m not going to downplay this virus, because I have no doubt that the impact it is going to have on the human race will be greater than initially anticipated, not necessarily in terms of deaths, but in terms of its disruptiveness, especially to the global economy.

After South Africa, and more specifically its stock exchange, experienced a very rough five-year period between 2014 and 2019, we have now seen the JSE, along with the rest of the world markets, declining even further.

This is also an understatement, because up to and including 13 March 2020, the FTSE/JSE All Share Index was trading 23.5% lower than the last trading day of 2019. In early March, I referred to high market volatility. Since then, we have seen the VIX (volatility index) exceed levels last seen in 2008 and reach some of the highest levels since its inception in 1990. The current level of fear must be the worst our global economy has seen to date.

As things stand, we now find ourselves in this situation, and just like any hardship we have endured in the past, we will get through this too. Without a doubt. Using Tiger Woods’s saying as inspiration, I don’t just believe that we will get through this, I believe that we will emerge from this stronger as a nation. With that in mind, why then aren’t more investors greedy to invest, like Warren Buffett is doing right now, while the rest of humanity lives in fear?

Let’s have a look at our local market and the facts at hand. During the last three weeks, aside from Covid-19, three other noteworthy events took place.

The oil price is 30% lower in rand terms, which means that the price of petrol is most likely to see one of its biggest drops ever.

Firstly, at the end of February, finance minister Tito Mboweni announced a corporate and personal tax saving for the 2020/2021 financial year. According to National Treasury, personal tax savings should put around R2bn back into the pockets of taxpayers.

Secondly, since the beginning of this year, the price of Brent crude oil has dropped by 41% in rand terms. Since the end of February alone, the oil price is 30% lower in rand terms, which means that the price of petrol is most likely to see one of its biggest drops ever. As transport makes up roughly 15% of SA’s inflation basket, it doesn’t take a rocket scientist to figure out that there will be savings in that department too. But petrol won’t be the only product to benefit from a lower oil price.

Food prices should also decline as transport costs become cheaper. Even paraffin should become cheaper. According to Stats SA’s General Household Survey in 2016, most South Africans use electricity for cooking and heating, but there are still many people who rely on paraffin as a power source. All those people should also benefit from a drop in the oil price.

Thirdly, the SA Reserve Bank, in line with the global trend, announced an interest rate cut of one percentage point on 19 March. It doesn’t matter what your opinion of the SA economy is, if you think that this won’t have a positive effect, you’re missing the plot. As with the two abovementioned points, this is money being put back into our crippled economy and it can potentially have a significant local effect.

Many of you may wonder where I see all this money flowing to, and my answer will be subjective. When I look at Stats SA’s most recent figures on personal savings as a percentage of personal income, I can tell you where it won’t be flowing into, and that is savings. Currently only 0.66% of all personal incomes are saved.

So where will it go then? I reckon it will most likely flow into the retail, healthcare and mobile phone services (data and talk time) sectors. These are all sectors that have taken quite a knock over the past few years. To conclude, I would like to wish all of you the best of health and tranquillity during these very difficult times. I do believe, however, that we will be stronger tomorrow than we all are today. ■

editorial@finweek.co.za

Schalk Louw is a portfolio manager at PSG Wealth.