The IMF said South African economic growth will be below the rate of population growth for the sixth year running in 2020, further exacerbating pressures on the jobs market and society, while S&P updated its outlook on the country's already-sub-investment-grade credit rating on Tuesday, although it's Moody's that matters most. Moody's, the last remaining agency to still have South Africa as an 'investment grade' borrower, could cut the nation's credit rating to 'junk' as soon as February 2020 in a move that would risk inciting potentially-significant outflows from the Rand because some fund managers would then be prevented from holding local government bonds in their portfolios. Concerns about the credit rating and South African economic outlook are exactly why U.S. banking behemoth Morgan Stanley tips the Rand to decline throughout 2020 even as other emerging market currencies ride the coattails of a rising Euro, which is forecast to have reached 1.16 against the Dollar by the time next year draws to a close. The USD/ZAR rate is forecast to end next year all the way up at 16.0 while the Pound-to-Rand rate is seen ending 2020 at 21.60.
South African Airways
South African Airways (SAA) has nearly no cash left and may miss salary payments from November 2019 onwards. The airline has received more than 20 billion rand ($1.35 billion) in bailouts over the past three years and is hobbled by an unprofitable route network and a fleet of inefficient planes.
Medical Health
The amended NHI proposal presented to parliament, however, states that current private health insurers will no longer be able to provide cover for treatments covered by the NHI. The current suggested treatments are:
preventive, community outreach and promotion services
reproductive health services
maternal health services
paediatric and child health services
HIV, AIDS and tuberculosis services
health counselling and testing services
chronic disease management services
optometry services
speech and hearing services
mental health services including substance abuse
oral health services
emergency medical services
prescription medicines
rehabilitation care
palliative services
diagnostic radiology and pathology services
This, of course, will see some of SA’s biggest economic giants – Discovery, Momentum Metropolitan, Bestmed, Bankmed, Bonitas, Medishield (to name a few) take a giant knock as they will no longer be authorised to provide medical cover for these treatments. This could consequently see a significant lay-off of employees as well as a drop in investment for medical aid groups. In fact, Discovery had already seen a 11% drop in share price at the mere introduction of the updated proposal, the drop was later paired to 5%.
Credit Rating
Credit rating agencies S&P Global Ratings, Fitch and Moody’s have downgraded South Africa’s credit rating outlook from stable to negative. Both Fitch and S&P hold South Africa’s creditworthiness on BB+ — sub-investment grade — while Moody’s has maintained SA on Baa3 rating — the rung just before junk status. Yet all rating agencies are in agreement that the Eskom bailout is not sufficient and that the lack of direction and action are placing the country’s economy under tremendous strain.
Although Moody’s stands alone in its investment grade rating, investor sentiment had already veered towards junk status. Compared to other countries with a similar Baa3 rating, South Africa’s average local-currency yields are rising and the cost of insuring SA’s debt against default is higher than countries with similar ratings such as Russia and Brazil.
Auditing and advisory firm BDO highlights the following implications of junk status:
Increasing inflationary pressure and impact on cost of living
Exchange rate devaluation
Interest rates increases which will result in more expensive debt
Lower foreign direct investment in SA
Possible redistribution of the country’s capital resources
Low economic growth
Increase in tax rates to supplement revenue collection by Treasury
Decrease in grants and social security payments
Power Supply
And yet despite Eskom’s woes and claims that it cannot supply electricity consistently to South Africans without load shedding, it still sells electricity to seven other countries which energy expert Ted Blom affirms is often sold at a lower cost than local electricity. And while Eskom has a surfeit of 66% employees according to the World Bank, its managers had already demanded pay hikes of 4,7% and warned of protest action should such raises not be provided.
Crash of the Johannesburg Stock Exchange
The JSE crash which started in 2018 has been called the longest downturn in SA business cycles since 1945, with 36% of JSE listed companies having depreciated with more than 15% in 2018 alone. Since 2018, 27% of all JSE listed companies had taken a further knock to fall to their lowest level in a year. These companies/institutions include:
The JSE itself
Discovery
Dis-Chem
First Rand (FNB)
Sasol
The Foschini Group
Arcelormittal SA
HCI (eTV)
Hyprop (Hyde Park, Canal Walk, Rosebank Mall, Cape Gate
Sappi
Mr Price
Nampak
Vukile Property Fund
Netcare
PSG
Rand Merchant Bank
Truworths
Super Group
Tsogo Sun (Montecasino, Sandton Sun)
Pick n Pay
Old Mutual
Nedbank
The FTSE/JSE Africa Banks Index had already fallen 6.6% in 2019 compared to a 1.1% drop by emerging-market peers, and as if these woes weren’t enough, SA’s biggest financial union is threatening a strike of 73 000 members which Bloomberg called the largest industrial action in almost a century. Austen Morris Associates further warns that many South Africans may not be aware that they are exposed to these companies via their pension funds, retirement annuities and exchange traded funds. Nick Petro, senior consultant at the firm, has advised South Africans to take their money offshore as soon as possible. With SA’s GDP slumping to its lowest spot in a decade and an economic collapse seemingly imminent, many analysts had believed the International Monetary Fund’s recent statements had been aimed at SA and indicated a possible bailout.
Black Economic Empowerment
Black economic empowerment (BEE) was one of the measures intended to address the racialised inequality in South Africa. But numbers collated by the Broad-Based Black Economic Empowerment Commission are not encouraging. They show that between 2015 and 2019 the number of black business owners has decreased from 33.5% to 27.8%. With the European and Khoisan cultural groups which makes out over 6 million of the South African population excluded from opening business as stipulated in the 110 plus law regulations (basically reversed apartheid laws) South Africa have seen a drastic exodus of these two ethnic groups to countries likes Australia, New Zealand and the USA. This in turn have caused a major shortage of highly skilled workers.
Farm Murders
Farm murders in South Africa started after the 1994 election and have been continuing for the last 25 years, it is considered a slow genocide on the European South Africans with well over 150 farm attacks occurring every year. This in turn have caused a large majority of farmers to leave their farms and move overseas. Since 1994 South Africa has become an importer of food while it was the major supplier of food to various African countries prior to 1994. In 2019 alone the has been 184 farm attacks so far.
Conclusion
The South African Rand (ZAR) in on the brink of collapse and is currently living on borrowed time. The artificial strengthening of the ZAR by the IMF and the South African Government cannot continue much longer, South Africa has ran out of money to continue with this. Will we see the complete decline of the ZAR in 2020 to such a level that it might completely collapse? That is exactly where I will be placing some of my investment by SHORT SELLING the ZAR from here onwards.
South African Airways
South African Airways (SAA) has nearly no cash left and may miss salary payments from November 2019 onwards. The airline has received more than 20 billion rand ($1.35 billion) in bailouts over the past three years and is hobbled by an unprofitable route network and a fleet of inefficient planes.
Medical Health
The amended NHI proposal presented to parliament, however, states that current private health insurers will no longer be able to provide cover for treatments covered by the NHI. The current suggested treatments are:
preventive, community outreach and promotion services
reproductive health services
maternal health services
paediatric and child health services
HIV, AIDS and tuberculosis services
health counselling and testing services
chronic disease management services
optometry services
speech and hearing services
mental health services including substance abuse
oral health services
emergency medical services
prescription medicines
rehabilitation care
palliative services
diagnostic radiology and pathology services
This, of course, will see some of SA’s biggest economic giants – Discovery, Momentum Metropolitan, Bestmed, Bankmed, Bonitas, Medishield (to name a few) take a giant knock as they will no longer be authorised to provide medical cover for these treatments. This could consequently see a significant lay-off of employees as well as a drop in investment for medical aid groups. In fact, Discovery had already seen a 11% drop in share price at the mere introduction of the updated proposal, the drop was later paired to 5%.
Credit Rating
Credit rating agencies S&P Global Ratings, Fitch and Moody’s have downgraded South Africa’s credit rating outlook from stable to negative. Both Fitch and S&P hold South Africa’s creditworthiness on BB+ — sub-investment grade — while Moody’s has maintained SA on Baa3 rating — the rung just before junk status. Yet all rating agencies are in agreement that the Eskom bailout is not sufficient and that the lack of direction and action are placing the country’s economy under tremendous strain.
Although Moody’s stands alone in its investment grade rating, investor sentiment had already veered towards junk status. Compared to other countries with a similar Baa3 rating, South Africa’s average local-currency yields are rising and the cost of insuring SA’s debt against default is higher than countries with similar ratings such as Russia and Brazil.
Auditing and advisory firm BDO highlights the following implications of junk status:
Increasing inflationary pressure and impact on cost of living
Exchange rate devaluation
Interest rates increases which will result in more expensive debt
Lower foreign direct investment in SA
Possible redistribution of the country’s capital resources
Low economic growth
Increase in tax rates to supplement revenue collection by Treasury
Decrease in grants and social security payments
Power Supply
And yet despite Eskom’s woes and claims that it cannot supply electricity consistently to South Africans without load shedding, it still sells electricity to seven other countries which energy expert Ted Blom affirms is often sold at a lower cost than local electricity. And while Eskom has a surfeit of 66% employees according to the World Bank, its managers had already demanded pay hikes of 4,7% and warned of protest action should such raises not be provided.
Crash of the Johannesburg Stock Exchange
The JSE crash which started in 2018 has been called the longest downturn in SA business cycles since 1945, with 36% of JSE listed companies having depreciated with more than 15% in 2018 alone. Since 2018, 27% of all JSE listed companies had taken a further knock to fall to their lowest level in a year. These companies/institutions include:
The JSE itself
Discovery
Dis-Chem
First Rand (FNB)
Sasol
The Foschini Group
Arcelormittal SA
HCI (eTV)
Hyprop (Hyde Park, Canal Walk, Rosebank Mall, Cape Gate
Sappi
Mr Price
Nampak
Vukile Property Fund
Netcare
PSG
Rand Merchant Bank
Truworths
Super Group
Tsogo Sun (Montecasino, Sandton Sun)
Pick n Pay
Old Mutual
Nedbank
The FTSE/JSE Africa Banks Index had already fallen 6.6% in 2019 compared to a 1.1% drop by emerging-market peers, and as if these woes weren’t enough, SA’s biggest financial union is threatening a strike of 73 000 members which Bloomberg called the largest industrial action in almost a century. Austen Morris Associates further warns that many South Africans may not be aware that they are exposed to these companies via their pension funds, retirement annuities and exchange traded funds. Nick Petro, senior consultant at the firm, has advised South Africans to take their money offshore as soon as possible. With SA’s GDP slumping to its lowest spot in a decade and an economic collapse seemingly imminent, many analysts had believed the International Monetary Fund’s recent statements had been aimed at SA and indicated a possible bailout.
Black Economic Empowerment
Black economic empowerment (BEE) was one of the measures intended to address the racialised inequality in South Africa. But numbers collated by the Broad-Based Black Economic Empowerment Commission are not encouraging. They show that between 2015 and 2019 the number of black business owners has decreased from 33.5% to 27.8%. With the European and Khoisan cultural groups which makes out over 6 million of the South African population excluded from opening business as stipulated in the 110 plus law regulations (basically reversed apartheid laws) South Africa have seen a drastic exodus of these two ethnic groups to countries likes Australia, New Zealand and the USA. This in turn have caused a major shortage of highly skilled workers.
Farm Murders
Farm murders in South Africa started after the 1994 election and have been continuing for the last 25 years, it is considered a slow genocide on the European South Africans with well over 150 farm attacks occurring every year. This in turn have caused a large majority of farmers to leave their farms and move overseas. Since 1994 South Africa has become an importer of food while it was the major supplier of food to various African countries prior to 1994. In 2019 alone the has been 184 farm attacks so far.
Conclusion
The South African Rand (ZAR) in on the brink of collapse and is currently living on borrowed time. The artificial strengthening of the ZAR by the IMF and the South African Government cannot continue much longer, South Africa has ran out of money to continue with this. Will we see the complete decline of the ZAR in 2020 to such a level that it might completely collapse? That is exactly where I will be placing some of my investment by SHORT SELLING the ZAR from here onwards.
Comment:
Thank you everyone for the comments, yes I do agree that the ZAR
Comment:
On track
Comment:
On track, amend trailing SL to your own preferences
Comment:
On track
Comment:
on track
Comment:
on track