Our thoughts from the 2020 State of the Nation Address

Back to Money advice
27 February 2020
For those old enough to remember, the recent State of the Nation Address (SONA) by President Ramaphosa was reminiscent of the old “open outcry” system on the JSE: A semblance of order amongst apparent chaos.

While events in Cape Town, didn’t inspire much confidence at a superficial level, there were some interesting nuggets in the President’s speech which provided potential catalysts for longer term economic growth and these were some of the things which stood out for the OUTvest team:

  • Government has understood that a country with constrained electricity supply can’t grow. Round 5 of the Bid Window for Independent Power Producer contracts will be opened up and earlier stage projects accelerated. Existing wind and solar projects will be able to supply additional capacity into the grid. You are able to produce up to 1 megawatt of power for your own use as long as you register and licensing for power generation in excess of 1 megawatt will need a license that must be granted in 120 days. 
  • Rail transport group PRASA will enjoy a R1.4bn investment which could improve social mobility while the Durban port – a major trading and logistics hub – will receive an upgrade to its facilities. 
  • The Infrastructure Fund is targeting over R700 billion in projects over the next decade – something which will bring a smile to the faces of construction firms who have suffered a torrid past 10 years. 
  • Extension of the Lanseria “Smart City” project which could end up housing up to 500 000 people and build on existing investment in the area.   
  • R9bn will be spent on social housing projects for up to 37 000 rental apartments while R64 billion has been earmarked for student accommodation, along with another R64 billion in private investment.
  • Six significant projects aimed at tackling the chronic youth unemployment crisis in the country.

 While some South Africansmay have rolled their eyes at the talk about a State-Owned Bank or Sovereign Wealth Fund, these are some tangible projects which might drive real economic activity and drive earnings for locally listed businesses.

Our recent feedback from our investment committee suggests South African assets are trading at very attractive valuations based on historic metrics and dividend yields. Read more on the Report back from the Investment Committee (Q4 2019) page.

One of the key Investment Committee themes for OUTvest clients who will be investing for the longer-term was that domestic equities are not expensive relative to history and indeed, we feel that at some point if developed market equities struggle, then flows may move into emerging markets, and the JSE could be a natural beneficiary of these flows .  

Ultimately we depend on confidence to drive economic activity and corporate earnings. A little dose of confidence could give South African businesses a bit of momentum which could drive asset prices.

If this sounds like an opportunity for you, then check out the suite of OUTvest products that best fit your risk profile.

 

 OUTvest is an Authorised FSP 
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