Investment Overview

1. 1 Source A part of the FirstRand Group
July 2017
Investment Overview

2. 2 Source A part of the FirstRand Group
A part of the FirstRand Group
The
GOOD
The
BAD
And the
UGLY
And then the TERRIBLE

3. 3 Source A part of the FirstRand Group
A part of the FirstRand Group
The
GOOD
(was MUCH bigger part of the
presentation before W/E 30 March 2017)

4. 4 Source A part of the FirstRand Group
Global status overview
Bloomberg

5. 5 Source A part of the FirstRand Group
Global GDP is improving but upward revisions are slowing
Source : JP Morgan
Still
reasonable,
but slowing
growth rate

6. 6 Source A part of the FirstRand Group
Resource Cycle has improved
Source : INet
Certainly
much better
than the
period 2011-
2016
So far only
back to 2014
levels

7. 7 Source A part of the FirstRand Group
Resource Cycle has improved
Source : INet

8. 8 Source A part of the FirstRand Group
Resource Cycle has improved
Source : INet
Closely
related:
Rand is much
better
Rand:
INVERTED

9. 9 Source A part of the FirstRand Group
Europe is improving
Source : INet

10. 10 Source A part of the FirstRand Group
Emerging markets showing relative value
Source: Barclays , Bloomberg
Shade area as
high as ever in
the past
This is GOOD
for us

11. 11 Source A part of the FirstRand Group
Foreign investors love the yield in SA
Source : INet
Yield
difference
RSA and USA
TOP OF
BAND

12. 12 Source A part of the FirstRand Group
Less Noise from Europe after Brexit

13. 13 Source A part of the FirstRand Group
Rand also behaving despite politics
Source : INet
Rand
Fair Value for
Rand

14. 14 Source A part of the FirstRand Group
And the drought has been broken
Inflation will fall
dramatically

15. 15 Source A part of the FirstRand Group
A part of the FirstRand Group
The
BAD

16. 16 Source A part of the FirstRand Group
Global status overview
Bloomberg

17. 17 Source A part of the FirstRand Group
Global status overview
Bloomberg

18. 18 Source A part of the FirstRand Group
Heightened Global Policy Uncertainty Adds Volatility
Notes: Global EPU calculated as the GDP-weighted average of monthly EPU index values for US, Canada, Brazil, Chile, UK, Germany, Italy, Spain, France, Netherlands, Russia, India, China, South
Korea, Japan, Ireland, Sweden, and Australia, using GDP data from the IMF’s World Economic Outlook Database. National EPU index values are from www.PolicyUncertainty.com and Baker, Bloom
and Davis (2016). Each national EPU Index is renormalized to a mean of 100 from 1997 to 2015 before calculating the Global EPU Index.
Source: policyuncertainty.com
0
50
100
150
200
250
300
350
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Global Economic Policy Uncertainty (EPU) Index
Asian & Russian
Financial Crises
9/11
Gulf War II
Global
Financial
Crisis
Eurozone Crises,
U.S. Fiscal Fights,
China Leadership
Transition
Brexit
European
Immigration Crisis
Using data for 17 countries that account for 2/3 of
global GDP
Trump
THIS IS THE
NEW NORMAL

19. 19 Source A part of the FirstRand Group
Key global macro calls
Source: Ashburton Investments
• Global growth is still reasonable
• BUT may already be in share prices.
• Trump policies business friendly but growing implementation uncertainty.
• Seems to be stalemate on policy implementation
• You do not know what is going to happen next. But will find out on Twitter!
• Protectionism and nationalism a threat.
• BUT after French election a little less
• China growth slowdown to continue, but it will be very gradual.
• An overvalued currency ( expected to depreciate further)
• Credit extension is a risk factor
• India is a positive long term structural and economic growth story
• Emerging Market bonds still show relative value.

20. 20 Source A part of the FirstRand Group
Good (because of the bad) progress on the current account
providing ZAR support
Source: EconoStat, FNB Economics
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
2010-Q1 2010-Q4 2011-Q3 2012-Q2 2013-Q1 2013-Q4 2014-Q3 2015-Q2 2016-Q1 2016-Q4 2017-Q3 2018-Q2 2019-Q1 2019-Q4
Current account/GDP

21. 21 Source A part of the FirstRand Group
A part of the FirstRand Group
The
UGLY

22. 22 Source A part of the FirstRand Group
SA - Growth appears to have bottomed in 2016 2017 - Mildest of
rebounds
EconoStat, FNB Economics
-2
0
2
4
6
1994 1999 2004 2009 2014 2019
% y/y
The first
Quarter was a
disaster
We are in a
proper
“Confidence”
recession

23. 23 Source A part of the FirstRand Group
Global status overview
Bloomberg
And this was what happened BEFORE
31/07/2017
(Covered under the TERRIBLE section)

24. 24 Source A part of the FirstRand Group
A part of the FirstRand Group
The
TERRIBLE
New Section – Did not exist
before 31 March 2017

25. 25 Source A part of the FirstRand GroupBloomberg
And we all know this disaster- Just when things
were getting better
BUT this is not over yet = We will see
Check
the worry
in my eye

26. 26 Source A part of the FirstRand GroupBloomberg
And we all know this disaster- Just when things
were getting better
BUT this is not over yet = We will see
This used to be one of the positive items
BUT
Now (again) a NEGATIVE

27. 27 Source A part of the FirstRand Group
Global status overview
Bloomberg
HI Everyone
I’m BACK
Parliament was
BORING
OOPS
Now I am gone
again!!!
(with my
chairman)

28. 28 Source A part of the FirstRand Group
Rating agencies keep SA investment grade
DOWNGRADE HAPPENED
IF politics does not change – FURTHER DOWNGRADES
Bloomberg
X
No major index
tracks Fitch

29. 29 Source A part of the FirstRand Group
Rating agencies keep SA investment grade
DOWNGRADE HAPPENED
IF politics does not change – FURTHER DOWNGRADES
Bloomberg
Foreign Debt – Junk with
Negative outlook
Local Debt – Downgraded
but still one above junk with
negative outlook
Local and Foreign Debt –
One notch above Junk

30. 30 Source A part of the FirstRand Group
Source: Ashburton Investments
FITCHJUNK
Properly Explaining Junk Status
S+PFOREIGNJUNK
MOODY’SFIRSTDOWN
MOODYSSECONDTOJUNK
S+PLOCALJUNK

31. 31 Source A part of the FirstRand GroupBloomberg
“Changing one man does not result in an
investment downgrade”
We have planned INTERVENTIONS to answer
the investment downgrade.

32. 32 Source A part of the FirstRand Group
Foreign currency rating down-grades. Local next?
International Scale rating:
We would have
avoided JUNK if
good politics BUT
NOT
DOWNGRADES

33. 33 Source A part of the FirstRand GroupBloomberg

34. 34 Source A part of the FirstRand GroupBloomberg
The new Public Protectors report was opposed by:
ABSA
DA
Other Civic Organizations
The Reserve Bank
The Parliamentary Finance Committee
Parliament Itself
The ANC
So the Public Protector herself decided to oppose her own
report.
If everyone else is opposing the report I might as well do so
myself!!
This resulted in the withdrawal of the report (with costs)
And then she decided to reprimand the State President for not
yet implementing her predecessors report recommending an
inquiry into state capture!

35. 35 Source A part of the FirstRand GroupBloomberg
The New Proposed Mining Charter (3):
Silent on Once Empowered – Always Empowered
BEE Ownership up from 26%-30%
1% Royalty on REVENUE
51% BEE for ALL NEW mining licenses
Defines who the BEE partners are
Defines the beneficiaries of BBBEE
Sets unreachable targets for skilled and women BEE
targets.
But does not really matter at Courts will reject the charter
Not negotiated
Outside power on the DMR iro Taxes etc
So the Minister has suspended the implementation
Courts will decide again!!
Same as the PP report – Political Statements not Policy

36. 36 Source A part of the FirstRand Group
The Rand has at long last stabilised ??????
Bloomberg
Foreigners do not seem
to worry as much as we
do.
They are possibly used
to it
SA may be the prettiest
of a very ugly bunch!!

37. 37 Source A part of the FirstRand Group
The Rand has at long last stabilised ?????
Short term view - Gordhangate
Bloomberg

38. 38 Source A part of the FirstRand Group
Domestic interest rates have peaked?????
And could even fall – because economy so bad
Bloomberg

39. 39 Source A part of the FirstRand Group
All share index
Flat for three years
Bloomberg

40. 40 Source A part of the FirstRand Group
Key themes to dominate the medium-term
Source: Ashburton Investments
• Gradual economic recovery constrained after a disastrous 2016
• Held back by political uncertainty – Confidence Crisis
• And credit rating downgrades
• Domestic political noise set to continue
• But will know one way or the other relatively soon (end 2017?)
• Sharp fall in business confidence to hit already weak fixed investment
• Shot to the foot again!!
• Weak growth in credit extension, particularly to households
• MORE TAXES TO FOLLOW
• Agriculture sector to rebound after drought
• Inflation risks dissipating, possibility of interest rate cuts
• But some good news – Economy is so weak that we do not import much
• Therefore Current Account Deficit much better

41. 41 Source A part of the FirstRand Group
Source: Ashburton Investments

42. 42 A part of the FirstRand Group
Thank you

43. 43 Source A part of the FirstRand Group
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