WEBVTT 1 00:00:00.372 --> 00:00:04.534 You're listening to Strictly Business Podcast with Lindsay Williams. 2 00:00:05.874 --> 00:00:12.377 Donald Trump, the 45th and now 47th President of the United States, has been 3 00:00:12.377 --> 00:00:14.377 busy marking his territory, 4 00:00:14.377 --> 00:00:18.980 stamping authority on his administration since his inauguration, which, let's face 5 00:00:18.980 --> 00:00:20.980 it, was less than two weeks ago. 6 00:00:20.980 --> 00:00:24.002 His latest executive orders have been arguably the most consequential, 7 00:00:24.282 --> 00:00:27.764 as tariffs have been slapped on key trading partners, notably. 8 00:00:28.064 --> 00:00:29.585 Mexico, Canada and China. 9 00:00:29.625 --> 00:00:31.187 And maybe the EU is going to come. 10 00:00:31.207 --> 00:00:31.907 We don't know yet. 11 00:00:32.147 --> 00:00:35.590 But he's indicated that those tariffs will be forthcoming. 12 00:00:36.071 --> 00:00:40.995 And these have potential global consequences as supply chains are 13 00:00:40.995 --> 00:00:42.995 disrupted. 14 00:00:42.995 --> 00:00:46.599 But most recently, Trump has also targeted South Africa in a message on his own 15 00:00:46.599 --> 00:00:48.599 social media network. 16 00:00:48.599 --> 00:00:49.201 What did he say and what are the implications? 17 00:00:49.261 --> 00:00:55.646 With me is Gail Daniel, portfolio manager responsible for the managed strategy at 91 18 00:00:55.646 --> 00:00:57.646 in Cape Town. 19 00:00:57.646 --> 00:00:59.646 Gail, we shouldn't be surprised. 20 00:00:59.646 --> 00:01:02.872 Because historically, President Trump has targeted, and Trump not as president, 21 00:01:02.932 --> 00:01:06.774 has targeted Africa in disparaging terms in the past, hasn't he? 22 00:01:07.635 --> 00:01:08.476 He has indeed. 23 00:01:08.736 --> 00:01:12.599 He's targeted Africa more than South Africa in the past, I think. 24 00:01:12.759 --> 00:01:14.140 And, you know, 25 00:01:14.160 --> 00:01:20.284 this is interesting because he's going straight for us and he's going on. 26 00:01:20.865 --> 00:01:24.367 I mean, what he mentioned in the tweet was obviously the expropriation. 27 00:01:25.812 --> 00:01:26.852 which he didn't like. 28 00:01:27.013 --> 00:01:33.975 And, you know, he used his capital letters to say it was unacceptable and that the US 29 00:01:33.975 --> 00:01:35.975 would do something about it. 30 00:01:35.975 --> 00:01:37.437 And I think it does raise, you know, several issues. 31 00:01:37.957 --> 00:01:41.519 Firstly, with Scott Bessett coming in as Treasury Secretary, 32 00:01:42.199 --> 00:01:47.041 I think we were all hoping that despite him saying that America's going to have a 33 00:01:47.041 --> 00:01:47.261 green, 34 00:01:47.261 --> 00:01:53.984 amber and red traffic light system, depending on your behaviour, although we 35 00:01:53.984 --> 00:01:55.984 wouldn't have thought that Canada would be red, 36 00:01:55.984 --> 00:01:58.663 We were all hoping we'd kind of fly under the radar that, you know, 37 00:01:59.164 --> 00:02:03.127 we're being small would be of an advantage and he wouldn't target us. 38 00:02:03.828 --> 00:02:06.350 But I don't think we're going to get off on that. 39 00:02:06.610 --> 00:02:10.613 And, you know, he said no more aid for South Africa. 40 00:02:12.034 --> 00:02:18.279 And obviously that is a problem because we are running a budget deficit about it's a 41 00:02:18.279 --> 00:02:18.739 very 42 00:02:18.739 --> 00:02:19.460 unproductive budget. 43 00:02:19.500 --> 00:02:24.144 But we're running it about as tight as we can run it, except perhaps we could. 44 00:02:24.868 --> 00:02:26.809 save money by not being in the Congo. 45 00:02:27.129 --> 00:02:31.431 And it looks like they're going to be five and a half million people needing ARVs, 46 00:02:31.491 --> 00:02:35.312 where perhaps that money would be better spent than up in Goma. 47 00:02:36.573 --> 00:02:42.335 So he's come at us at a time where the government is desperately looking for 48 00:02:42.335 --> 00:02:42.415 capital. 49 00:02:43.635 --> 00:02:45.376 And now we're going to lose capital. 50 00:02:46.328 --> 00:02:51.971 I just want to go back to the wording of the message on his social media network, 51 00:02:51.971 --> 00:02:53.971 Truth Social. 52 00:02:53.971 --> 00:02:57.794 He talked about terrible things happening in South Africa and to certain classes. 53 00:02:57.854 --> 00:03:01.716 Now, I don't want to politicise this too much, but we know what he means. 54 00:03:01.736 --> 00:03:05.018 And then, as you quite rightly say, he's threatened to withdraw aid. 55 00:03:05.018 --> 00:03:06.599 Do you think he's going to go through with this, Gayle? 56 00:03:08.400 --> 00:03:09.140 I think he could well. 57 00:03:10.321 --> 00:03:15.464 I mean, I think there are other things about South Africa that will irritate him 58 00:03:15.464 --> 00:03:17.464 too, which weren't in that tweet. 59 00:03:17.464 --> 00:03:19.233 For instance, the government's relationship with Iran, 60 00:03:20.274 --> 00:03:23.775 who we know is either public enemy number one or two for the US. 61 00:03:24.916 --> 00:03:31.498 So the market, interestingly, didn't think he would go through with the tariffs on 62 00:03:31.498 --> 00:03:33.498 Canada and Mexico. 63 00:03:33.498 --> 00:03:34.339 And you can see that by the reaction in the markets today. 64 00:03:34.479 --> 00:03:36.940 They thought it was all bluster. 65 00:03:37.641 --> 00:03:38.821 And he has gone through. 66 00:03:39.622 --> 00:03:42.583 And I think we need to be concerned. 67 00:03:43.703 --> 00:03:45.604 And then you can ask. 68 00:03:46.172 --> 00:03:47.612 Well, is it in the price? 69 00:03:49.073 --> 00:03:54.134 You know, with bond yields at 10.5, where they were, you know, 70 00:03:54.134 --> 00:03:59.196 the last time our spread over years bonds was at these levels, and the RAND was at 71 00:03:59.196 --> 00:04:01.196 19, 72 00:04:01.196 --> 00:04:01.336 our bonds were over 12%. 73 00:04:02.517 --> 00:04:04.097 We're now at 10.5. 74 00:04:05.157 --> 00:04:11.039 But that was going into the election, where we didn't know what the outcome was 75 00:04:11.039 --> 00:04:13.039 going to be, and we got the GNU, 76 00:04:13.039 --> 00:04:14.300 which was a more favorable outcome than the market anticipated. 77 00:04:15.060 --> 00:04:15.760 But... 78 00:04:15.760 --> 00:04:21.404 I just think that, you know, 150 basis points is a bit kind for the bond market. 79 00:04:21.884 --> 00:04:23.265 So there's going to be more pressure there. 80 00:04:23.806 --> 00:04:28.009 Gail, what has been the immediate knee-jerk reaction after this Trump 81 00:04:28.009 --> 00:04:30.009 message? 82 00:04:30.009 --> 00:04:31.211 Well, we saw a bit of dollar strength. 83 00:04:31.291 --> 00:04:32.632 Actually, the yen held in. 84 00:04:33.212 --> 00:04:37.455 And then we saw the Rand, you know, test 19, go through 19. 85 00:04:37.555 --> 00:04:39.637 And we're seeing equities sell off in general. 86 00:04:40.377 --> 00:04:44.360 Because, you know, tariffs are not a win for anyone. 87 00:04:45.768 --> 00:04:52.333 And with a lot of markets at very high levels, I think a lot of fund managers are 88 00:04:52.333 --> 00:04:54.333 just thinking, well, 89 00:04:54.333 --> 00:04:56.333 maybe we should take some risk off the table here. 90 00:04:56.333 --> 00:04:58.158 You mentioned that the RAND briefly went through 19 to the US dollar. 91 00:04:58.718 --> 00:05:01.220 What is the case for this becoming embedded? 92 00:05:01.761 --> 00:05:05.904 And the second part of this question is perhaps the RAND's too weak. 93 00:05:06.024 --> 00:05:11.108 I mean, admittedly, we've had a message from an incredibly important person, but 94 00:05:11.108 --> 00:05:13.108 has it gone too far? 95 00:05:13.108 --> 00:05:19.331 Well, I think the answer to that question lies in what happened last week when the 96 00:05:19.331 --> 00:05:21.331 Saab had their press conference. 97 00:05:21.331 --> 00:05:26.154 And they stated that if tariffs had to come on, could see the RAND weaken to 21 98 00:05:26.154 --> 00:05:28.154 to the dollar. 99 00:05:28.154 --> 00:05:32.298 Now, I don't think it was particularly clever of the Saab because, you know, 100 00:05:32.298 --> 00:05:34.298 don't give the market a target. 101 00:05:34.298 --> 00:05:40.602 But I think the RAND can get weaker, particularly in this environment, because 102 00:05:40.602 --> 00:05:42.602 we are so short of capital. 103 00:05:42.602 --> 00:05:44.602 And. 104 00:05:44.602 --> 00:05:48.766 The government's answer to needing capital is, in inverted commas, 105 00:05:49.266 --> 00:05:50.366 privatisation. 106 00:05:51.267 --> 00:05:56.909 But you cannot say privatisation and expropriation without compensation in the 107 00:05:56.909 --> 00:05:58.909 same breath. 108 00:05:58.909 --> 00:05:59.810 Those two things are contradictory. 109 00:06:00.790 --> 00:06:05.932 Listening to you, Gayle, it just seems to me that the timing is a little bit 110 00:06:05.932 --> 00:06:07.932 inappropriate, actually. 111 00:06:07.932 --> 00:06:12.195 We've got the expropriation bill, and that's one thing which has caused concern 112 00:06:12.195 --> 00:06:14.195 to President Donald Trump. 113 00:06:14.195 --> 00:06:17.116 Trump, then we've got the South African Reserve Bank comments about the RAND 114 00:06:17.116 --> 00:06:19.116 perhaps going 115 00:06:19.116 --> 00:06:19.357 to 21 to the US dollar. 116 00:06:19.537 --> 00:06:25.339 When it comes to the RAND, do you think it's independent RAND weakness that we're 117 00:06:25.339 --> 00:06:27.339 seeing and might see in the future? 118 00:06:27.339 --> 00:06:29.900 Or is it a combination of RAND weakness and dollar strength? 119 00:06:31.160 --> 00:06:35.201 I don't think we've seen very much idiosyncratic South Africa risk. 120 00:06:35.921 --> 00:06:41.383 You know, the RAND was kind of at 17 or approaching 17 in the final quarter of 121 00:06:41.383 --> 00:06:43.383 last year. 122 00:06:43.383 --> 00:06:44.920 But that was when the years had been cutting, 123 00:06:45.600 --> 00:06:51.062 and it was when years-long bonds went from 4.6 at mid-year point to 3.6. 124 00:06:51.882 --> 00:06:53.362 So it was, and we had the GNU. 125 00:06:53.942 --> 00:07:00.004 So I think you had some idiosyncratic strength priced in, but in the final 126 00:07:00.004 --> 00:07:02.004 quarter of last year, you saw the dollar strengthen a lot. 127 00:07:02.004 --> 00:07:03.085 And I think the RAND weakened as a result of that. 128 00:07:03.265 --> 00:07:08.426 I don't think we've had, you know, much concern. 129 00:07:08.947 --> 00:07:10.147 I mean, last week... 130 00:07:10.287 --> 00:07:17.132 We had a wobble on the canoe and then sort of they came out blowing kisses at each 131 00:07:17.132 --> 00:07:19.132 other or waving from a 132 00:07:19.132 --> 00:07:21.132 distance, whatever. 133 00:07:21.132 --> 00:07:23.956 And interestingly, the ramp kind of stabilized, but it never really 134 00:07:23.956 --> 00:07:25.956 strengthened. 135 00:07:25.956 --> 00:07:26.778 So maybe a little bit there, but not much. 136 00:07:27.499 --> 00:07:28.880 Here's a key question now, Gail. 137 00:07:29.920 --> 00:07:31.381 How are you positioned at the moment? 138 00:07:31.882 --> 00:07:33.443 And let me put this in two ways. 139 00:07:33.543 --> 00:07:39.587 Were you ready for the eventualities that we've just been speaking of and positioned 140 00:07:39.587 --> 00:07:41.587 accordingly? 141 00:07:41.587 --> 00:07:42.749 And if you weren't, are you repositioning now? 142 00:07:43.810 --> 00:07:48.333 So, I mean, I like my companies to grow and I like growth. 143 00:07:48.973 --> 00:07:52.035 And I think markets like growth and capital goes to where growth is. 144 00:07:52.255 --> 00:07:56.338 So when the mutual fund that I ran, 145 00:07:56.818 --> 00:08:02.102 when that sector was allowed to go up to 45% offshore, I think it was two years ago 146 00:08:02.102 --> 00:08:02.382 now, 147 00:08:03.203 --> 00:08:05.404 I took the fund to 45% offshore. 148 00:08:05.444 --> 00:08:08.586 That is quite a differentiating position from peers. 149 00:08:08.666 --> 00:08:09.467 That has gone up. 150 00:08:09.687 --> 00:08:15.351 with the outperformance of the S&P, of the local market and a bit of brand weakness 151 00:08:15.351 --> 00:08:17.351 we've had, 152 00:08:17.351 --> 00:08:20.655 to close to 50% where the peer group sits at 40%. 153 00:08:20.695 --> 00:08:24.177 And so I am positioned for this. 154 00:08:24.938 --> 00:08:29.761 I'm positioned for it on the basis that I never really bought into the SA growth 155 00:08:29.761 --> 00:08:29.780 story. 156 00:08:30.601 --> 00:08:37.346 I think we've had, you know, fortunately we got the canoe because all bets would 157 00:08:37.346 --> 00:08:39.346 have been off if we didn't. 158 00:08:39.346 --> 00:08:41.346 But... 159 00:08:41.346 --> 00:08:41.961 Going into that, I was also cautiously positioned. 160 00:08:42.301 --> 00:08:43.441 It could have gone the other way. 161 00:08:44.262 --> 00:08:44.962 It didn't. 162 00:08:44.962 --> 00:08:48.224 We got the canoe, so that didn't help me in the near term. 163 00:08:48.704 --> 00:08:51.386 But longer term, I don't think much has changed. 164 00:08:52.026 --> 00:08:55.168 We have this canoe, which is perceived to be stable. 165 00:08:55.608 --> 00:09:00.091 One has to ask, you know, how will the DA react to these Trump tweets? 166 00:09:00.231 --> 00:09:04.993 Minister Montush has already said, well, we won't sell them our minerals then, 167 00:09:05.134 --> 00:09:07.455 which I don't think is perhaps the best answer. 168 00:09:07.795 --> 00:09:12.716 And I think we're going to see a lot more pressure on our side. 169 00:09:12.997 --> 00:09:18.498 And we've seen earnings disappointments, you know, particularly out of the 170 00:09:18.498 --> 00:09:20.498 retailers, some of which put on 60% last year. 171 00:09:20.498 --> 00:09:25.800 They had absolutely everything under the sun going for them in Q4 last year, where, 172 00:09:26.100 --> 00:09:32.842 you know, you had the two-pot system, you had no repeat of the port problems, you 173 00:09:32.842 --> 00:09:34.842 had no load shedding, 174 00:09:34.842 --> 00:09:34.943 you had Black Friday taking place. 175 00:09:35.163 --> 00:09:37.965 after month end compared to the previous year before month end. 176 00:09:38.366 --> 00:09:41.148 And some of them are still delivered very poor growth. 177 00:09:41.729 --> 00:09:47.693 So I was positioned with more offshore than my peers, with fewer SA government 178 00:09:47.693 --> 00:09:49.693 bonds, 179 00:09:49.693 --> 00:09:54.619 because until we create employment growth, SA is not a growth story. 180 00:09:56.160 --> 00:09:58.002 And we haven't seen that coming through. 181 00:09:58.482 --> 00:10:01.285 And that's why you haven't really favoured SA Inc. 182 00:10:01.665 --> 00:10:03.807 And let me put this delicately now. 183 00:10:04.147 --> 00:10:05.348 Are you anti-Essay Inc. 184 00:10:05.468 --> 00:10:06.849 or are you anti-Essay Inc. 185 00:10:07.089 --> 00:10:13.054 relative to the opportunities that are presenting themselves overseas with the 186 00:10:13.054 --> 00:10:15.054 45% that you've spoken of? 187 00:10:15.054 --> 00:10:16.339 So, I mean, two points. 188 00:10:16.519 --> 00:10:22.421 Firstly, I think if you came down from Mars and said how much of your portfolio 189 00:10:22.421 --> 00:10:24.421 would you 190 00:10:24.421 --> 00:10:26.943 have in South Africa, it wouldn't be 65%. 191 00:10:27.884 --> 00:10:29.044 It would be less than that. 192 00:10:31.685 --> 00:10:33.646 Secondly, some of SA Inc. 193 00:10:33.666 --> 00:10:35.047 is very expensive. 194 00:10:36.007 --> 00:10:38.068 And actually quite a lot of it is very expensive. 195 00:10:38.068 --> 00:10:40.069 You know, ShopRite's on 26 times. 196 00:10:40.649 --> 00:10:42.750 Clix is on 30-something times. 197 00:10:43.106 --> 00:10:44.927 That's more than Facebook and Google. 198 00:10:45.527 --> 00:10:48.047 First Rand trades on the same price to book as J.P. 199 00:10:48.187 --> 00:10:48.887 Morgan. 200 00:10:48.887 --> 00:10:50.328 With a similar ROE, but J.P. 201 00:10:50.448 --> 00:10:57.150 Morgan does it all for 5% cost of funding, whereas, you know, First Rand does it all 202 00:10:57.150 --> 00:10:59.150 10%. 203 00:10:59.150 --> 00:11:01.150 J.P. 204 00:11:01.150 --> 00:11:03.150 Morgan is a superior business. 205 00:11:03.150 --> 00:11:05.150 Next, in the UK, you know, is a lot cheaper than Fashini. 206 00:11:05.150 --> 00:11:06.872 So I don't buy this big value argument for USA Inc. 207 00:11:07.313 --> 00:11:10.413 I think there are some cheap shares, but they tend to be very small. 208 00:11:11.294 --> 00:11:12.834 So they're quite hard to buy. 209 00:11:12.894 --> 00:11:13.594 play. 210 00:11:14.095 --> 00:11:14.795 So 211 00:11:15.756 --> 00:11:22.662 I would need to see better growth drives those valuation levels and that's the one 212 00:11:22.662 --> 00:11:24.662 thing that the US has 213 00:11:24.662 --> 00:11:28.307 had is that those companies grow very quickly so they de-rate nicely. 214 00:11:28.988 --> 00:11:35.873 And then I would need to see policy pronouncements which can support growth 215 00:11:35.873 --> 00:11:37.873 and there are things 216 00:11:37.873 --> 00:11:39.873 that the government can do. 217 00:11:39.873 --> 00:11:43.079 I mean it's interesting in an economy with 40% unemployment, 218 00:11:44.159 --> 00:11:45.680 we have this minimum wage. 219 00:11:46.640 --> 00:11:51.743 So you've got this COVID grant, which the government's trying to extend, of 350 rand 220 00:11:51.743 --> 00:11:51.822 a month. 221 00:11:52.343 --> 00:11:56.945 You would think if you scrapped the minimum wage that people would be able to 222 00:11:56.945 --> 00:11:58.945 get a job for that. 223 00:11:58.945 --> 00:11:59.826 It's quite devastating. 224 00:12:00.467 --> 00:12:06.469 And then Eskom, where the government provided, I think it was a 250 billion 225 00:12:06.469 --> 00:12:08.469 rand bailout, a huge bailout, 226 00:12:08.469 --> 00:12:10.469 a year later... 227 00:12:10.469 --> 00:12:13.127 they've got receivables of 110 billion rand because the municipalities don't pay 228 00:12:13.127 --> 00:12:13.467 them. 229 00:12:13.668 --> 00:12:20.109 Why don't they change the direction of cash flow so that the end user pays ESGIM 230 00:12:20.109 --> 00:12:22.109 who then pays a 231 00:12:22.109 --> 00:12:24.911 distribution fee back to the municipality and not let the municipality sit on it? 232 00:12:25.651 --> 00:12:32.173 And to think that they can come out and privatise those businesses and maybe the 233 00:12:32.173 --> 00:12:34.173 fund managers in their 234 00:12:34.173 --> 00:12:36.374 arrogance think that if they give the government money for that the 235 00:12:36.374 --> 00:12:38.374 municipalities will pay? 236 00:12:38.374 --> 00:12:39.055 Oh, it's a big question mark. 237 00:12:39.395 --> 00:12:44.117 So there is stuff that can be done that would make me more bullish on SA Inc. 238 00:12:45.597 --> 00:12:50.259 But I think it's been given all the benefit of the doubt and the earnings need 239 00:12:50.259 --> 00:12:52.259 to come through. 240 00:12:52.259 --> 00:12:54.259 And so far they aren't. 241 00:12:54.259 --> 00:12:58.383 So what you're saying is your managed strategy at 91 in Cape Town is full steam 242 00:12:58.383 --> 00:13:00.383 ahead until otherwise advised, Gail. 243 00:13:00.383 --> 00:13:00.504 Gail, thank you very much for your analysis. 244 00:13:00.564 --> 00:13:06.566 Gail Daniel is a portfolio manager responsible for the managed strategy at 91 245 00:13:06.566 --> 00:13:08.566 in Cape Town. 246 00:13:08.566 --> 00:13:15.458 The views and opinions expressed in these podcasts are those of Lindsay Williams and 247 00:13:15.458 --> 00:13:17.458 various contributors and do not reflect the policy, 248 00:13:17.458 --> 00:13:19.220 position or opinion of any other agency, organisation, 249 00:13:19.540 --> 00:13:24.183 employer or company associated with StrictlyBusinessPodcast.com. 250 00:13:24.643 --> 00:13:31.607 Assumptions made on the analyses are not reflective of the position of any other 251 00:13:31.607 --> 00:13:33.607 entity other than the speaker or the author. 252 00:13:33.607 --> 00:13:38.050 And since we are critically thinking human beings, these views are always subject to 253 00:13:38.050 --> 00:13:40.050 change, revision and revision. 254 00:13:40.050 --> 00:13:42.050 and rethinking at any time. 255 00:13:42.050 --> 00:13:42.636 Please do not hold us to them in perpetuity.