IN PICTURES | Greening The Future 2023:
The Mail & Guardian Greening the Future awards, which was launched in 1998, is an annual celebration of individuals, companies, communities and NGOs busy working on making the world a better place for us and future generations. This year’s awards took place on 30 November to coincide with COP28.
Winners of the 2023 Greening The Future awards with M&G Climate Editor Ozayr Patel and host Catherine Constantinides. (Delwyn Verasamy/M&G)
Winners of the 2023 Greening The Future Awards. (Delwyn Verasamy/M&G)
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Local investors need a new playbook on China:
China’s economic growth headwinds requires asset managers to change tack
China’s slowing GDP growth and ongoing transition away from an infrastructure investment-led to a consumer-led economy, while also having notable local fiscal implications for the South African, is ultimately creating increasing risk for local investors and requires a nimble approach from asset managers.
The old investment playbook — which relied on China’s multi-year, near-double-digit economic growth; investments into infrastructure and property; and global manufacturing dominance to sustain it — is no longer relevant. Instead, China’s economic growth headwinds continue to be splashed across front page news, with headlines like “Xi’s failing model”, “China’s fading economic miracle and disillusioned youth”. Rather than dominating global growth through 2023, as hinted at by the International Monetary Fund (IMF) in Q1 2023, China is floundering under an alarming debt burden and changing demographics.
Underestimated economic implications
Given the size of China and its importance to South Africa, we need to start paying significantly more attention to China’s economy than we do the United States. Importantly, the macros that have driven the Chinese economy over the last two decades are unlikely to continue to drive it over the coming years; and that has significant consequences for South Africa.
China is facing some fundamental structural issues, starting with its demographics. In the 1970s, the county boasted a near-perfect balance between young and old; today the pyramid is all askew, with an ageing population and a low birth rate. There are fewer workers to power the manufacturing sector, and nobody to buy the thousands of homes built during the debt-fuelled property boom.
China’s property sector, long an underpin of its economic growth, is faltering. At its peak it made up 32% of GDP; today it is at levels last seen in the early 2000s, at around 24%. Property as an investment vehicle is now being questioned in China. In addition, its economic model now needs to change from being manufacturer intensive to consumer intensive. These changes will have a significant impact on South African investors, given that around 35% of JSE Top 40 revenues derive from Asia/Middle East for total revenues.
Commodities conundrum
China is one of South Africa’s major trading partners, but a waning Chinese economy has a far greater impact than simply affecting our trade balance. At present, Chinese demand for major commodities such as aluminium, copper, iron ore and nickel make up more than 50% of global markets. Any fall in demand for commodities is bad for commodity producers like Australia, Chile and South Africa. In South Africa’s case, a slowdown in Chinese commodity demand — and decline in commodity prices — results in a drop in export revenues and tax revenues.
The contribution of commodities to South Africa’s income tax and royalty revenues is starkly illustrated by the tax contributions of the 15 largest mining companies. Their tax contributions are forecast to fall by almost half in 2023, from R90 billion in 2022 to around R48 billion (and well short of the 2021 windfall of R110 billion). The story worsens in 2024, with a further 10% decline in estimated tax revenue collection to just over R40 billion. However, the South African revenue authorities are not the only one’s feeling the commodity price pinch.
Playing China through the resources companies is going to be less relevant and less profitable going forward. Over the last five years, the best way to earn returns through the JSE (as affected by China) has been via the resources sector; but the slowdown in China’s motor vehicle manufacturing and property investments, and the ongoing “shift to green” are forcing a re-think.
A new approach is needed, with companies such as Naspers and Richemont being more likely to dominate future “plays” on the Chinese market. This is because firms with exposure to the Chinese consumer theme are preferred over resources, as they will benefit more as that economy transitions away from infrastructure-led growth.
Selective opportunities
However, if you look back over the last 40 to 50 years you see plenty of bad-news-driven pullbacks, yet our market has delivered returns amid this noise through the decades. This indicates that opportunities for returns do still exist for the selective investor.
Against this backdrop, our preference is for a cautious equity strategy, with a higher weighting to global defensive and technology shares, and gold, and a move away from resources and telecoms.
The focus is on finding firms that will prove resilient, regardless of the macroeconomic constraints. For shares with global revenues, the likes of Anheuser-Busch, British American Tobacco, Naspers and Richemont are on the radar. As for South Africa Inc, local banks remain attractively priced, as are defensive retailers such as Spar and Shoprite and clothing retailers such as Foschini and Mr Price.
For more information, visit: https://www.oldmutualinvest.com/institutional/invest-with-excellence/
Siboniso Nxumalo, Chief Investment Officer, and Meryl Pick, Head of Equity Research, Old Mutual Investment Group
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Multi-Party Charter says it didn’t discuss Jardine as presidential candidate:
The Multi-Party Charter for South Africa (MPC) says it has capable leaders to run the country should it emerge as the victor in the 2024 elections.
The charter was reacting to a Sunday Times report that businessman Roger Jardine met DA leaders for talks about becoming the face of the MPC and possibly South Africa’s next president.
The MPC, consisting of the Democratic Alliance (DA), ActionSA, Inkatha Freedom Party, Freedom Front plus, the Independent South African National Civic Organisation, United Independent Movement and the United Independent Movement, published a statement on Monday evening distancing itself from the news report.
“It is fully recognised that every party in the Multi-Party Charter has the autonomous right to engage with, and make decisions about their relationship with, different individuals and
organisations. Notwithstanding this fact, the Multi-Party Charter For South Africa would like to point out that there have been no discussions relating to a joint presidential candidate for the charter.
“The charter agreement recognises the individual identity of each party and the imperative for each party to grow its individual electoral support with a view to advancing the prospects of a collective majority for the charter. It is understood that this requires each party to advance its own offer to the South African people within the context of the agreement.”
The MPC said any decision to support a joint presidential candidate, either before or after the elections, would be based on the merit and mandate of the candidate.
“The parties in the Multi-Party Charter For South Africa affirm that our parties are led by leaders who are all capable of providing the leadership needed for a new multi-party coalition to start the work of turning South Africa around,” it said.
The MPC signed an agreement during its first convention in August, which stipulated that the leader of the coalition partner that secures the largest number of votes will become the leader of government business in a coalition cabinet.
As things stand, this would guarantee the DA’s John Steenhuisen the post of deputy president of the country as the leader of the largest opposition party, should they make it over the line in the next elections.
The issue of who becomes president would be resolved through a vote in parliament because it is MPs, not voters, who elect South Africa’s head of state.
The parties would share cabinet posts on a proportional system based on the number of votes they secure, but have also agreed in principle to review the size of South Africa’s cabinet should they come to power.
They agreed to carry out lifestyle audits on all members of the executive, and that the party which is dominant in the cabinet will not enjoy the same dominance in parliament.
This will give key posts such as committee chairs, the speaker and the whips positions in the National Assembly and the National Council of the Provinces — as well as the provincial legislatures — to the other parties in the coalition.
The parties also agreed that they would allocate cabinet posts based on merit and not patronage or party membership and to make cabinet appointments from across South Africa’s population groups.
The FF Plus leader Pieter Groenewald has previously warned that the country is not ready for a white president, endorsing IFP leader Velenkosi Hlabisa for the top job.
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