CABINET RESHUFFLE

Cabinet reshuffle in South Africa - and what it means

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WHAT IS THE BACKGROUND?

  • It’s been a week of high drama, culminating in the removal of Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas as part of a Cabinet reshuffle that saw a number of other ministers also lose their positions.
  • The announcement of Gordhan’s removal was not entirely unexpected, but the timing was a surprise.
  • This should be seen in the context of the ANC’s leadership contest later this year.
  • Until that is settled, political uncertainty is likely to remain. n Malusi Gigaba, a long-time Cabinet member, will now be the fourth Finance Minister since December 2015. 

WHAT ARE THE IMPLICATIONS? 

  • As was to be expected, both the rand and equities linked to the South African economy weakened sharply and bond yields spiked higher.
  • As was to be expected, both the rand and equities linked to the South African economy weakened sharply and bond yields spiked higher.
  • While it will take a while for markets to settle and for investors to figure out whether, and how, this alters the economic and political landscape, considerable market volatility can be expected for some time.
  • In the meantime, it is hard to argue that the announcement will not dampen already depressed business and consumer confidence. The sharply weaker rand also all but rules out any hope of lower interest rates in the foreseeable future, a prospect that was brightening notably over the past few months.
  • The chance of sovereign ratings downgrades by the rating agencies now also looms large – the rest of which could be Moody’s on April 7. Should this indeed materialise, another wave of currency weakness could be triggered. 
  • n The President’s move against the Finance Minister also raises serious concerns over medium-term prospects for the economy, as it will be very hard to reverse the shock among investors and businesses, both locally and abroad.
  • The economy also now runs an increased risk of getting stuck in a prolonged period of stagnation as SA could increasingly fall off global investor radar screens, given political and policy concerns amid a poorly performing economy. 

WHAT DOES THIS MEAN FOR CUSTOMERS?

  • With the severe impact on the economy, all South Africans pay the price – in the form of higher inflation, decreased buying power as well as adverse impacts on their savings, pensions and investments.
  • A lack of investment also means that economic growth – and much-needed job creation – will be stifled with less chance of job opportunities.

WHAT SHOULD OUR CUSTOMERS DO?

DON’T PANIC

  • It is vital that you speak to an accredited financial adviser about your finances. A sound financial plan helps build resilience regardless of what the market is doing. Regular reviews of your place ensure that you remain on track
  • We have witnessed other major political shocks – including the US election and Brexit – in recent times and the lesson from these has clearly been not to make knee-jerk portfolio changes because the market often reacts differently to what you expect.
  • Such events always evoke strong emotions, even among seasoned investment professionals. But making investment decisions based on emotions is dangerous and ill-advised.
  • We urge you not to make re ex-investment decisions, as these developments have probably not played themselves out fully.
  • The best defence against uncertainty is appropriate diversification. It might feel safer fleeing to cash or taking all your assets offshore, but investments that are the result of fear-based decisions usually do not deliver the desired outcome over time.

STICK TO YOUR PLAN... ALWAYS

  • Even though the future is unknown, we believe that during volatile times it is important to keep calm and stick to your plans. Remember to take a long-term view of your savings and investments. A long-term approach to investing has been shown to produce the best outcomes for investors.
  • Staying invested in well-diversified portfolios and saving on a regular basis is a far more effective strategy than changing your plans when financial markets are under stress.
  • Your investments are managed by skilled and experienced managers who will continue to make decisions based on the long-term fundamentals and it is important not to let emotion lead to a decision that may harm your long term strategy.
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