Standard Bank Talks In-Market Insights

In-Market Insights: Post-election South Africa, the economic implications of the GNU

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The formation of the South African Government of National Unity, saw equities, bonds and the rand rally. With South Africa’s seminal national elections behind us, we look at Operation Vulindlela, as well as various interventions by the GNU to boost investor confidence. We also hone in to see how the markets are responding. Listen to episode 2 of the In-Market Insights podcast as we talk to South African experts, Rudi Dicks, from the office of Presidency, and Deanne Gordon, Strategist at Standard Bank Equity Research. They’ll offer invaluable perspectives on navigating South Africa’s post-election economy.

The In-Market insights podcast. Brought to you by Standard Bank Global Markets.
3 Dec English South Africa Business · Investing

Audio transcript

00:00 Welcome to InMarket Insights, Standard Bank Global Markets'premier broadcast series that delves into Africa's dynamic business environment in an era marked by unprecedented geopolitical tensions on a scale not seen since World War II.
00:13 I'm Godfrey Mutizwa.
00:15 Now, as the world recalibrates in response to shifting alliances and economic power plays, Africa emerges as both a fertile ground for growth and a complex arena with unique challenges.
00:27 In today's episode, we look at at the prospects for South Africa's capital markets in these uncertain times.
00:33 Let me welcome my guest, Rudy Dix, Head, Project Management Office in the Presidency.
00:37 Welcome, Rudy.
00:38 Thanks, Godfrey, for inviting me.
00:40 And Deanne Gordon, Strategist, Standard Bank Equity Research.
00:43 Welcome, Deanne.
00:45 Thank you, Godfrey.
00:46 Let me begin with you, Rudy, and perhaps speak to government efforts to get growth going again in South Africa.
00:54 In particular, the whole effort around...
00:57 Operation Volindela, as well as the extensive reforms that we know the government has been implementing?
01:03 Absolutely, Godfrey.
01:04 I think that one of the key challenges that our country has been facing is slow or lacklustre economic growth.
01:12 Certainly at the rate of growth that we're going at, recognition that that would be insufficient to absorb the number of people that are unemployed, neither would it create the kind of investment.
01:24 or the kind of development that is required from a genuine economic point of view.
01:30 Government's recognition that we needed to do something quite drastic to be able to change the fortunes and to ensure that we get much more higher growth, much more inclusivity, much greater levels of investment.
01:41 And of course, part of that process was during COVID and towards the end of COVID when government had adopted the Economic Reconstruction and Recovery Plan.
01:51 And one of the key tenants of that plan was the structural reform program.
01:55 And the focus was basically, you know, what is in government's power that we are able to change and ensure and create the kind of confidence for investors to invest in a new growth paradigm, which is under the economic reconstruction recovery plan.
02:11 And of course, Operation Woodland Leather, the structural reform program was initiated.
02:16 And the five key things that it did focus on was ensuring that we get energy supply and reform the energy market, ensuring that we improve our logistics.
02:25 And, you know, again, reform to create a more sustainable and efficient and competitive logistics sector to do with water and water constraints.
02:34 to deal with telecommunications issues, for example, spectrum auctioning, for example, as one of those focus.
02:39 And the fifth area was, of course, the area related to visa and visa reforms, because we needed to track the right sort of skills into it.
02:46 And that's been the focus of the structural reform program.
02:48 And of course, you know, its first phase came to an end at the end of the sixth administration.
02:55 The president has, of course, indicated that the second phase in the seventh administration would have to continue.
03:02 And so we've got a lot of work that we've done, but I think certainly the work that we've done around the structural reform program has created a high level of confidence.
03:10 We've shown actually that it's not just a talk shop, it's not just about promising changes, but in actual fact seeing those changes happen, like in the electricity space, like in the telecommunications space, like in the visa or the water space.
03:23 I mean, these are important changes that have been around for some of these.
03:28 Policy decisions have been around for many, many years, sometimes decades, and they've never been implemented.
03:34 What we've done is to work together with the government to implement those changes and to ensure that that can impact on the kind of economic growth that we require.
03:42 Yeah.
03:43 Now, some would be asking the question, so you are talking about the work that you have done, the progress that you have made.
03:49 But we also know now that government is expanding Operation Vulindela.
03:52 And some are asking the question, you're taking more additional responsibility, yet we know.
03:57 The water situation has not been resolved and we do know that we're at the beginning of the visa regulatory reform.
04:04 How can you justify adding these other things when you have got still work to do on the first part?
04:10 I mean Godfrey you spot on the reasons why we only chose five.
04:14 One of the problems with government, sometimes it's not only government, it's you know generally our society we tend to take When we talk about priorities, we tend to have a long list of priorities.
04:24 You know, when you talk about key priorities, you've got to talk about, you know, three, four, five, you know.
04:29 And when we started the reform program, we could have added a whole series of different reforms that would have been, you know, equally impactful.
04:37 But we chose those five because those five, according to the models that we run, would have given three and a half to five percent over the next five years on the baseline for growth.
04:46 So that was an important part.
04:48 Our decision was not based on emotions, our decision was not based on anything else, but that what would have given us the biggest level of growth, and that was the reality.
04:58 So, of course, there are...
05:00 There are still outstanding matters.
05:01 Electricity, although we've had more than 269 days of no load shedding, the fact is that we're not entirely out of the woods yet.
05:09 We've got to grow our economy, which means there's greater demand for electricity.
05:13 We've made reforms in the energy space to introduce a competitive market within the generation.
05:18 We're forming a national transmission company of South Africa to allow for it to be able to regulate that market space.
05:25 So these are changes that are going to be quite important that we've got to carry through.
05:29 Similarly in water, as you've used as an example.
05:32 Visas, I think we've done exceptionally well in the last few months, particularly the points-based system and the nomadic visa or the visas that systems are being adapted towards, the kind of ability for us to become globally competitive.
05:52 What we are doing is adding on three, only three new reforms.
05:55 So over and above that, we have pressures of long lists of reforms, but we're adding on three, which we think is quite important to enhance and lift economic growth.
06:04 The first is local government.
06:06 And we're going to look not specifically at trying to fix local governments.
06:10 So it's not about interventions to run local governments in municipalities.
06:14 But it's trying to deal specifically with water distribution or electricity distribution, for example.
06:19 So it carries forward the energy reforms and the water reforms, but down the value chain.
06:25 And I think that's quite an important part.
06:28 Similarly, we said the second new area is digital transformation.
06:32 And we think that's a no-brainer, for instance.
06:36 Issues related to digital identification, digital payment systems.
06:39 These are important areas that we introduced during COVID times.
06:43 that we think we need to institutionalize.
06:44 We need to make it much more easier for citizens to adapt, for government to provide the services, and to create great efficiency in that.
06:53 And the third area is spatial inequality, or spaces.
06:57 And we've said that because, you know, while it's quite important to be able to introduce efficiency in the way that people live and work, it also has an impact on business.
07:05 And this relates to public transport, for example, or human settlements.
07:10 Title deeds, for instance, which we had in the first reform.
07:13 which we're carrying through.
07:14 So it's not a bundle of a whole set of 20 other reforms.
07:19 It's a continuation of work.
07:21 Continuation on the past work moving into different areas of focus.
07:26 Deanne, let me come to you and bring you into the conversation here.
07:29 So I just wanted, at the outset, your view in terms of how the markets have viewed the reforms.
07:38 Before we talk about the impetus that's been brought in by the formation of the government of national unity as well.
07:44 Sure.
07:45 Look, I think you've seen both the equity market and the bond market rally significantly this year as a result of a lift in confidence and optimism following the elections and the creation of the government of national unity.
08:02 And in actual fact, both your equities and your bonds up until the Trump victory were up.
08:07 15% in local currency, which is a very nice little run.
08:14 I think there's definitely been increased optimism about the structural reform process, having legs and a cyclical recovery taking hold in South Africa.
08:27 I think note too that in our view, we think South Africa probably was close to hitting rock bottom last year.
08:36 Obviously, with load shedding weighing very, very heavily.
08:39 But I think there was a lot of pessimistic views that we wouldn't be able to see growth lift above 1%.
08:48 And I think that has changed meaningfully post the creation of the government of national unity for two key reasons.
08:57 I think one, that there has been buy-in across the board, and this is really according to Rudy.
09:05 from the Government of National Unity for Operation Will and Leila.
09:09 And I think that's absolutely critical to ensure that the structural reform process continues to gather momentum because that's definitely the engine of growth for SA going forward.
09:21 I also think that what has raised optimism is, and this is our view, that for the first time, I want to say almost an essay's history of recent history.
09:35 We've got a very, very strong cluster of what we term economic ministers to actually ensure that we do see a growth lift.
09:44 And I think there, you know, I can name them.
09:46 Minister of Transport, Barbara Creasy, I think, has got an excellent reputation.
09:51 We know what the Minister of Electricity has done.
09:55 We've seen that with...
09:56 you know, over 200 days with no load shedding.
09:59 And then you've got a Minister of Trade and Industry, and according to lots of sources, is also absolutely business-friendly, market-friendly, growth-friendly.
10:09 And obviously the Minister of Finance has got a long history with us and he's very safe hands.
10:16 And what we also include in that cluster is the Minister of Police, who I think...
10:23 It has definitely, the market is very confident that if you look at those core group of ministers, that they should be able to drive a stronger growth trajectory going forward.
10:37 And I think that's one of the key reasons that we are seeing strong performance coming through.
10:43 There's increased optimism that the structural reform process continues and has got buy-in across the board.
10:52 And I think together with that, you've also got the cyclical prospects which have improved with inflation falling and rate cuts commencing.
11:01 So I think for the first time in a long time, we've actually got quite a virtuous cycle playing out in SA, where you've got structural reforms, gaining traction, which we've seen in electricity.
11:14 And you've got, on the other hand, cyclical lift.
11:18 coming through from rate cuts, lower inflation.
11:21 And what I'd include in the cyclical lift is improved confidence, which is pretty critical.
11:26 And I think there it's business and consumer confidence, which is definitely improved.
11:31 Yeah.
11:31 I'm going to come back to you and ask you if we have done 15% of their prospects for another 15% in the coming years ahead.
11:39 But park that question for now.
11:41 I want to, though, raise an issue around the risk of a.
11:47 This optimism that we have built, unravelling, dare I remind you of the days of Ramaphoria?
11:55 Yes, and I think that's one of the key reasons that we've seen foreign investors being sidelined, is I think that's very fresh in their minds that there was huge optimism around President Ramaphosa coming in.
12:10 And unfortunately, delivery took a bit longer than expected.
12:13 And I think that's really what it boils down to.
12:16 I think we're actually seeing tangible signs of structural reform delivery, thanks to Rudy's team and to just that engine room working so hard.
12:27 We've seen it in electricity.
12:29 We're definitely starting to see signs that Transnet and the logistical issues are bottoming and there's signs of stabilization.
12:37 and that that should start improving in the medium term.
12:41 We've seen it on the visa front.
12:43 So I think there's tangible evidence, whereas Ramaphoria we were hoping for a lot.
12:48 I think there's a lot more evidence now.
12:50 And I think, you know, as I mentioned earlier as well, I think the cyclical recovery is definitely taking hold too.
13:00 And we're hoping that the RAN continues to behave really well.
13:04 Yeah.
13:04 And that that...
13:05 plays through to lower inflation and subsequently, you know, further scope for rate cuts to work through over the course of next year.
13:13 But I do think the critical, critical, critical element that's been missing for a very long time in South Africa is confidence.
13:23 If you eyeball any of the business or consumer confidence charts or just look at the numbers, they haven't broken even.
13:31 since prior to the Zuma era, since 2008.
13:35 And over the course of the last quarter, we've definitely seen a lift.
13:38 And I think if you can just maintain the momentum of the structural reform process, you see a continued lift in confidence.
13:47 We actually think that growth should be significantly improved from the sub 1% level that we've got so used to in South Africa.
13:57 Yeah.
13:58 Rudy, I noticed that she said, critical twice when she was referring to the issue of confidence.
14:06 And I want you to speak a little bit to that.
14:09 But I also want you to perhaps reflect on the skepticism that was built as a result of the Ramaphoria era.
14:16 I probably won't be able to speak so much about the Ramaphoria because this is, you know, the president, of course.
14:24 You know, I mean, think just a small bit of historical.
14:27 context.
14:28 I think it's something that people tend to forget.
14:31 Within its first year, the president had to confront COVID.
14:37 So COVID had started.
14:39 You haven't had completed a year yet, and you already had a crisis where you had to lock down the economy.
14:44 You had to deal with a national crisis.
14:48 Employment took a big knock.
14:49 Growth took a big knock.
14:50 Investment took a big knock.
14:51 And we're only seeing some of that being recovered three, four years later.
14:55 A labor market just recently recovered.
14:57 So I think sometimes we forget the context also that the fact that you had to deal with a whole series of different crises.
15:06 Let alone the fact that I think that the president had to inherit state capture, had to address the fact that state capture had destroyed the capacity of the state to deliver.
15:17 And had to then say we needed to develop a program for us to be able to address some of these fundamental constraints, which is including the reform program.
15:28 I think that for the last four years and into the new administration, I think the fact that we've maintained that momentum.
15:37 We have remained accountable and transparent.
15:41 I think what the market does like, what people in the banks or in the financial markets do like, is that every quarter we provide a report and update of the reform program.
15:50 Every quarter we indicate where we...
15:52 not, you know, we're failing or whether we're not succeeding in that reform program.
15:57 We're indicating the reasons for that.
16:00 But the point about the momentum being maintained, because, you know, a lot of the reform programs are, you know, telecommunications, for example, auction.
16:08 Yeah.
16:08 We sold off the spectrum.
16:09 You did.
16:10 Right.
16:10 We made some money.
16:13 It's now for the MNOs to invest and to expand and to bring down the cost.
16:17 We've seen the cost being brought down in the last year or so.
16:20 And so similarly, we see some of the other reform programs.
16:23 We take decisions and people take investment decisions.
16:25 That's confidence that they're prepared to spend money to deal with us.
16:30 Similarly for the energy space, Standard Bank, a huge investor in the renewable energy sector, both for the auction IPP program and for the private generation that we've done because of the legislative changes.
16:44 The important point that I think Deanne makes is the continued momentum.
16:47 The fact that the.
16:48 The president himself is in charge of the structural reform program, indicates that seriousness at the head of government is prepared to drive and deliver on the reform program.
16:59 And that he set a team in motion, you know, between the presidency and national treasury to continually drive through and take the reform program across the line.
17:08 So it's not us sitting on our laurels and having to say we're going to do this.
17:13 You know, regularly we're reminded about what has been.
17:17 what you've done.
17:18 And then we've already started asking questions.
17:20 So has this been impactful?
17:22 So I suppose for us to maintain that level of confidence is our ability to continue the momentum, continue driving the reform and showing that it wasn't just a blip.
17:33 It wasn't just a little bit of bump, but in actual fact, it's something that's continuous.
17:37 Because that's the only way we can sustain the kind of growth that we want.
17:41 Absolutely.
17:41 I have to say, as a reporter, certainly I think the flow of information from government to the country in general has certainly changed.
17:50 There's no question about it.
17:51 Access to ministers is improving and access to technical experts like yourselves has also been improving.
17:58 But the people in the banks...
18:00 While they listen to words, they like numbers better.
18:03 Let's talk about the difference that government hopes it will make in terms of upping South Africa's economic growth rate, which has, as we all know, in the decade or so before President Sili Ramaphosa came in, really plateaued and, in fact, was below population growth.
18:23 Put some numbers in terms of what government hopes to achieve in economic growth terms.
18:26 I've heard the 3% thing.
18:28 I want to hear it again.
18:30 No, I'm not going to put numbers.
18:31 The N are the ones who run those numbers.
18:34 Look, we've run certain models.
18:36 The banks have run certain models.
18:38 Certain academic institutions like the Bureau of Economic Research has run certain models.
18:44 And all they've done is said, if we plug in a whole set of variables, including predominantly the structural reform stuff, if we've done what we said we've done and we continue to do what we say we're going to do, And you take the cyclical changes, which Deanne had referred to, suddenly we become favourites amongst emerging markets.
19:08 We're going through an interest rate decline, inflation.
19:14 receding, those are all important parts of creating the kind of economic changes.
19:21 There are also demand side interventions that are required.
19:23 Government support for industrial policy, for example, or various interventions to support growth in some of the sectors.
19:31 These are all contributing factors.
19:34 Ideally, what you want is anything.
19:37 I would love to see growth of 3%.
19:41 But when someone says 3% in 2025, I mean, I...
19:44 become also skeptical being an economist myself.
19:47 I mean that would be absolutely revolutionary to see the jump from where we sit right now to something like three percent you know.
19:54 So I suppose what would be important is to build that momentum.
19:58 So you don't also want too fast growth right you may not have the capacity to be able to sustain that.
20:04 Absolutely.
20:05 So you want to see the kind of growth that lifts you above two to two and a half percent potentially next year.
20:10 Yeah.
20:10 At the end of that quarter, you know, taking us into 2026, much of the fixed capital formation coming through in the energy and in the logistics space.
20:21 That's the kind of growth that you want, you know, and you want to see.
20:24 So I mean, rightly so, lots of permutations of forecasts, but ultimately it's, you know, it's what we got to do and deliver.
20:34 Yeah, yeah.
20:35 Deanne, I zeroed in on that 3% number.
20:39 In fact, it's more than 3%.
20:40 I think it was 3.3%,
20:41 if I remember the number accurately.
20:42 The president has spoken about it.
20:44 Members of his cabinet have spoken about it.
20:46 And I just wonder how the markets have viewed that number, given the past disappointments that we talked about earlier.
20:54 And also the fact that these are numbers that we haven't seen in the last 15 years, because we'd have to go back to 2004, 2005, right?
21:02 Yeah.
21:02 Look, I think a couple of points to make.
21:05 One, our base is really low.
21:07 The 2023 base, like I said, I kind of think we tripped at the bottom of the hill.
21:13 We couldn't fall much further looking at all the impacts that converged last year.
21:19 So if I look at it from an earnings perspective, the base is really low.
21:23 So we quite upbeat about base effects delivering very solid teens, at least earnings growth.
21:32 I think it's probably similarly true for GDP growth.
21:35 And I think the Reserve Bank's model showed that electricity cost the economy in terms of GDP growth some 2% last year.
21:44 So some are actually just doing a back of the matchbox calculation by saying, OK, let's add on the 2%.
21:52 Then if that's what load shedding did last year, we should have at least 2% this year if you add it back on.
21:59 So I think expectations generally.
22:02 from investors are that we should be able to achieve 2% next year minimum.
22:08 I don't think anyone's quite at three.
22:10 I think everyone's too scared to put their, kind of stick their necks out and get that bold because we've all, you know, once bitten, twice shy, or should I say lots bitten, twice shy.
22:21 But I think from an earnings growth perspective in particular, we're very confident about teens'earnings growth.
22:28 And it's in particular from...
22:31 the domestic inc, domestic cyclical sectors that are so downtrodden and that base is so low because they were so badly hit by very low demand by load shedding, your base is you know basically at least zero if not negative and you should see quite a nice bounce off that base going into 2025 with the bulk of the load shedding impact weighing in the second half of last year.
22:57 So the second half of this year into next year should be a lot stronger.
23:02 So I think it's base effects, which, you know, partly driving renewed optimism and higher expectations for growth.
23:12 But I also think that the fact that the structural reforms are taking hold has definitely moved sentiment.
23:19 And I do think that we should be relatively confident about 2%, 2.5%.
23:26 percent growth coming through.
23:29 Yeah, in fact, I think SBG Securities is recommending an overweight position on South African equities and bonds.
23:34 And this is from an asset allocation perspective.
23:37 And you've already spoken about the 50% that you saw.
23:42 The question then becomes, but for how long and what kind of drivers do you see taking South Africa further if you do see this momentum building in terms of outperformance by South African assets?
23:56 I think there's a lot of bad news priced into our risk assets.
24:00 And what do I mean by risk assets?
24:02 It's basically your equities and your bonds.
24:05 I think we've got a big political risk premium that's priced into the bonds that should hopefully start settling as we see the government of national unity getting its teeth sunk into key issues.
24:20 I think it's also related to fiscal discipline working through, and hopefully that...
24:25 leads to some repricing of the bond market together with lower inflation and lower short rates.
24:32 I think in terms of the equities, I think, yeah, again, a lot of bad news priced in.
24:38 When we do the calculations and whether we look at the JSE index or whether we look at the MSCI, which is what our global peers look at, the MSCI SA, which fits into the MSCI emerging market universe.
24:53 Yeah.
24:54 South Africa is derated by 50%, by over 50%, in fact, since 2015.
25:01 Sure.
25:01 So a lot of bad news priced in.
25:04 So we definitely see scope as you see a growth lift, as you see greater confidence about reform delivery for some re-rating to work through.
25:15 We've started to see a bit of it come through this year.
25:19 But we think of that.
25:21 50% derating base, we should be able to see at least 15% to 20% re-rating over the medium term in South Africa.
25:30 So we think it's got legs.
25:32 We think it's relatively enduring.
25:34 It's not just re-rating.
25:35 If we correct and you see ongoing structural reforms together with a cyclical recovery, some lift in commodity prices, this should be a medium term recovery story in risk assets where you should- be able to get teens returns in local currency over the course of the next three years.
25:55 Yeah, I want to come back to you and talk a little bit about perhaps where you see the easier money being made within that equities universe.
26:05 And perhaps if you've got some names for me, that would be great.
26:08 But let's bring in Rudy, because the ability of the market to outperform is obviously predicated on the performance of the economy.
26:17 And we have seen.
26:18 in the U.S.
26:19 election, dare I say it, a complication of the picture going forward.
26:26 And one of the key reasons is that complication is because of the incoming U.S.
26:30 president's stance on stuff like trade.
26:34 Foreign direct investment inflows in South Africa have been dire, and we know that they have not yet picked up.
26:40 So I wondered your thoughts in terms of the government approach to this, to buttress and support this optimism that Diane is talking about.
26:50 Yeah, I mean, I think there's a couple of global risks.
26:52 I mean, I think Europe is not looking in a good state either, right?
26:57 And partly there are a number of factors with relation to that.
27:01 I think the biggest risk for us, of course, is whether a goer itself would be at risk and whether the incoming president, the incumbent, potentially takes a much stronger stance on tariff protection relative to...
27:16 what is done previously, that would knock our manufacturing quite hard.
27:20 Sure.
27:20 Particularly the autos, right?
27:21 100%.
27:23 It's our third largest auto market, the U.S.
27:27 market.
27:28 So I certainly think there's a lot of work that we've got to do.
27:30 This is a reality that we've got to face, an incumbent that takes a particular stance.
27:37 We've got to think about how one diversifies our markets, strengthen existing partners that are there.
27:44 I also think there are opportunities.
27:46 So we've got to think about how one deals with some of the opportunities that are there from where we sit.
27:51 We're still relatively competitive in some certain products and I think in services as well where they are tradable.
28:00 And I think that we're going to have to find ourselves in that situation.
28:06 Other than having to, like many others, sit there and feel dire about it and just despondent.
28:13 I certainly think there's a great opportunity for us.
28:15 I mean, you know, the fact that we've been able to take some significant changes within the energy and logistics space, you know, shows that, for example, one of the leading investors of renewable energy in the African continent is ourselves.
28:29 Sure.
28:30 Similarly, some of the stuff that we're going to do in logistics, for example, and the reform that we're going to introduce.
28:35 Again, there are significant opportunities in the real economy, which, of course, has a significant impact on.
28:42 equities and the bond market.
28:44 Certainly, we've got to see a greater role of private sector in spaces that we don't see traditionally, and I think that's what will attract people to our shores.
28:52 The fact that it's not government or the state sector going out looking for borrowing.
28:56 It is in actual fact the private sector looking for financing and capital to fund projects that would be in a traditional state sector that would, in some sense, been important for our developmental objective.
29:08 And I think that's what makes a big difference and makes it attractable for, I think, external markets.
29:13 Absolutely.
29:14 Deanne, come in and give me that color.
29:16 But perhaps before you do, I just wanted to pose a question around the extent to which the markets are pricing the Trump victory as a risk or opportunity.
29:26 Let me not be pessimistic.
29:27 Yeah, look, I'm going to just summarize very briefly our global strategist's view on a Trump victory.
29:35 We do think that a lot of the movements that we've seen are temporary.
29:40 So in particular, dollar strength, which obviously has an impact on the RAND.
29:46 The points he makes are Trump's policies have not changed from his first term in office.
29:53 And you didn't have a particularly strong dollar then.
29:56 And the second point he makes is that Trump in actual fact favours a weaker dollar.
30:03 So from that perspective, we think that the flurry that you've seen in the dollar will be relatively short-lived and that we're still relatively constructive on the RAND outlook, which then feeds through to our view of staying overweight domestic assets relative to offshore assets.
30:22 I think obviously the unknown is...
30:25 how from an inflation perspective globally, how inflationary his policies are going to be and how he tinkers or tampers with the Fed.
30:36 And obviously with Jerome Powell's term coming up for renewal or replacement, we're not sure what happens post that.
30:45 But I think those are the uncertainties.
30:46 The market's pricing in more inflation, the market's pricing in a much stronger dollar.
30:53 But as I said, we think that it's largely temporary if we look at his first term and the performance during that.
31:01 Yeah.
31:01 So you keep referencing these bright spots within the equity space here in South Africa and your position overall on South Africa.
31:09 Let's talk a little bit about where you've seen that money being made.
31:14 So we are in particular positive about domestic cyclical stocks.
31:21 So stocks that move as interest rates move.
31:26 In particular, I think the easiest play in the market, the most liquid are probably the banks.
31:34 Now, generally, the banks do well in the latter part of the interest rate cutting cycle.
31:42 But we think that the banks are actually quite well positioned to take advantage of the surge in renewables.
31:50 the investment and we actually believe that credit growth could be enhanced as a result and we haven't really had a credit growth cycle in South Africa in a very long time.
32:01 Credit growth has been very pedestrian at around 4-5% year on year.
32:07 So we think there could be quite a nice lift as Rudy said, you see a lot of private sector investment and all that needs funding and we think it will.
32:17 We've seen Standard Bank very involved.
32:19 We think all the banks will be very involved.
32:21 So we think there's a credit cycle.
32:23 And over and above that, if we write and you see some compression in bond yields, you should get a re-rating of your bank sector as well.
32:36 So we're very constructive on the banks.
32:38 We also really like your credit retailers.
32:41 Very similar story to the banks.
32:44 Lower short rates, improved demand.
32:46 For the first time, if you do see some credit cycle because consumers are a bit more upbeat and confident, again, it all comes back to confidence, then we think the credit retailers look very interesting.
33:00 And we also like the industrial plays.
33:03 And they, in particular, they're a bit small and relatively illiquid, but we think the construction story has got legs in South Africa.
33:13 We've seen some really nice prints coming through from companies like Raubix, Wilson Bailey, where their order books are full.
33:20 We've seen...
33:21 improved spending capacity coming through from government and then you've obviously got private sector spend as well so we we constructive on the infrastructure investment story and as a result on the construction companies and then other big industrials as well that should benefit from an overall better GDP growth environment in South Africa yeah and I'm sure it's a story that Rudy likes closing remarks from you Rudy just in respect of that outlook and the work that needs to be done by the government to support the optimism that's being built in the markets.
33:55 I mean I think that Dan is right and I think that's the kind of optimism we want to see it go through the real economy right I mean that's that's the most important part of of why we think this is quite critical because that's where we investors want to see it in earnings.
34:09 Absolutely in earnings and and you know it's where you get the kind of real Remember, you started off with foreign direct investments, right?
34:18 FDI flows, that's what you want at the end of the day, right?
34:21 So the opportunities are here, and I think that's what we've got to sustain and keep the momentum going.
34:26 So the structural reform program, the ability for us to create and partner with the private sector, increasing private sector participation in energy and rail space and elsewhere are going to be important, all marks of what we've got to do in the reform space.
34:41 I think particularly a thing that I didn't speak about is the fact that we've got to enhance our partnership and collaboration with business.
34:49 Because that in itself is also an important confidence measure that we are able to work together on resolving outstanding problems as government with business.
34:58 Now, this is not business telling government what to do.
35:00 Yeah.
35:00 But simply working together in collectively trying to solve problems like we did during COVID.
35:05 Similarly, we can find other spots of, you know, weaknesses that we've got to do.
35:10 But that collaborative effort is something, again, that the president would want to sustain.
35:14 I mean, we're just quite excited that the president, of course, will continue in this term of office for another five more years, the reform program.
35:22 We hope to achieve and successfully in the reform program on what we've set out.
35:27 And of course, the new administration that would come in years from now would have to decide on what would be an important focus of them for economic growth.
35:35 So exciting times, really looking forward to some of the responses.
35:39 I think we've got to get the business people all aligned.
35:41 We've got to get the banks aligned.
35:43 Everybody's ready for the kind of investment that we hope to happen.
35:47 And ultimately, what we want is high levels of growth so we can see employment and we can see investments.
35:52 Absolutely.
35:53 Jobs is what everybody is talking about.
35:55 Rudy, thank you very much indeed.
35:57 Rudy Dix, Head, Project Management Office in the Presidency.
36:01 Thank you.
36:01 Deanne Gordon, Strategist, Standard Bank Equity Research.
36:05 Thank you, ma'am.
36:06 for joining us for this conversation and all of you we've been listening thank you for listening in and until next time goodbye you have been listening to standard bank global markets in market insights your window into the realities of doing business in epic

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