Among his many pearls of wisdom, Sir Winston Churchill is quoted as saying, “The inherent vice of capitalism is the unequal sharing of blessings. But the inherent vice of socialism is the equal sharing of miseries”.

Looking at how little South African citizens are getting from government lately – not only those who have been forced to privatise basic services, but everyone in SA – that feeling of equal misery is glaringly evident. Yet, even as we scramble to make sure our devices are fully charged and that there’s enough fuel to run the generator before the next bout of loadshedding, us Saffers have had our fair share of better-than-expected news.

June saw the release of the last instalment of Judge Raymond Zondo’s report on State Capture, and while the jury is still out as to whether those implicated will ever see the inside of a courtroom (let alone a prison cell!), the mere fact of exposing the mountain of evidence must surely mean a bunch of corrupt, senior politicians and their connected cadres are all sleeping a lot less easy at night.

We were also buoyed last month by the news of the arrests of the Gupta brothers in Dubai and again, while it may be too early to celebrate, it does serve as an indication of another step further away from the “Republic of No Consequence” and one towards a time of greater accountability in our beloved country.

Yet, having to sit in the dark, huddled around your gas heater for warmth it is understandable that you may be somewhat reluctant to feel perky. The first half of 2022 has been one of the worst ever starts to a year for markets, as indiscriminate selling brought about the bear market we are witnessing across almost all asset classes. Driven by Russia’s ongoing war on Ukraine, rising interest rates, supply shortages and inflation, a sense of enormous uncertainty understandably dominates.

You will have heard us say that 70% of how we do and how we feel as South Africans has nothing to do with ourselves but is rather a factor of the state of the global economy outside of our own borders. And right now, the global economy is under immense pressure: 40-year record inflation, the highest interest rates since 2007, and the risk of a recession have all compounded to put immense pressure on the influence that 70% has. So, regardless of how positive or negative our own, SA-driven 30% may in fact be, the greater influence of performance and sentiment right now (i.e. the rest of the world’s 70%) is inevitably going to drag our spirits and metrics down with it.

Locally though, the economy is certainly facing its’ own headwinds… the ANC government (not unexpectedly in an elective conference year!) appears paralysed with either indecision or apathy (or both!), unable to pass any meaningful interventions to meet the challenges our society is facing. Almost three decades of failed governance and ineffective policies have slowly ground our GDP-growth to a glacial pace – notwithstanding the government’s inherent inefficiencies, lack of service delivery, and thirst for blatant corruption!

To quote former UK Prime Minister Margaret Thatcher, “The problem with socialism is that you eventually run out of other people’s money”.  The turning point of the ANC’s utopian dream of a government with centralised control appears to have been reached and is now clearly slipping away. Just a week ago – and to the absolute dismay of Cosatu, the SACP and the EFF – Eskom CEO Andre de Ruyter signed-off private electricity production projects to bring a further 1,800MW onto the grid over the coming 18 months, with a further 6,000MW ear-marked for announcement in the coming weeks. And while we sadly need this additional capacity right now and not only in a year and a half, the message is clear – ideology and politics are being trumped by the need for urgent results and immediate action! We hope to see many more policy shifts in this promising direction over the months to come!

So, as this bear market and unpleasant point in the economic cycle grind painfully on, I would like to leave you with the following thought:

It is not that we think that the world, our own country, or any other economy across the globe is in great shape. But looking at markets and asset prices at these levels it is evident that the average investor expects an economic disaster – and this is what is being reflected in the bearish markets today. But if this does not materialise and we see an even modest recovery, risk assets that have fallen so sharply could very well recover most of their losses from the first half of this year in a relatively short space of time. And this is the reason why we remain hopeful!

On behalf of the team, I wish you a safe, warm (and hopefully electrified!) week ahead, and I thank you for entrusting us with the ongoing management of your wealth and investments!

Steve Crouse

Chief Investment Officer and Senior Advisor