Weekly Roundup 2022-12-02 – PHALA PHALA

Weekly Roundup 2022-12-02 – PHALA PHALA

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 73 151 74 323 0,81%
NASDAQ Composite 15 833 11 226 11 461 -27,61%
S&P 500 4 797 4 026 4 072 -15,11%
Prime Lending Rate 7,25% 10,50% 10,50% 44,83%
Lunar BCI WW Flexible Fund 165,68 148,29 149,36 -9,85%
USD/ZAR 15,96 17,10 17,51 9,71%
EUR/ZAR 17,95 17,78 18,46 2,84%
Brent Crude 77,86 81,71 85,90 10,33%

Source: iress

Company and Market News


Just as we were all about to get into the December spirit, an independent parliamentary panel released a report concluding that President Cyril Ramaphosa may have violated the constitution in his capacity as President. Earlier this year, evidence was released of thieves raiding Ramaphosa’s game farm (Phala Phala) and stealing around $580 000. The panel recommended that the relevant authorities and parliament do a full investigation to determine if Ramaphosa may have violated the Constitution by taking paid work outside his government role, not declaring foreign currency holdings with the exchange control; and contravening the Prevention and Combating of Corrupt Activities Act.

South African markets reacted negatively. The financial services sector (which is generally a good indicator for the economic stability of a country) decreased 5,9% during the week. And the USD/ZAR rate increased by 2,4% during the week; despite the USD weakening against other currencies. There is still quite a bit of uncertainty around what could happen from here. Below are some scenarios that we think could play out for Ramaphosa and the ANC.

  1. The ANC can recall Cyril Ramaphosa. Either David Mabuza, Paul Mashatile, or someone else from the ANC could then become acting president until the 2024 general election.
  2. Ramaphosa can take the findings under review and let the courts decide if the findings of the panel were sufficient to allow parliament to impeach him. If parliament does agree to go through an impeachment process, then at least two thirds of parliamentarians would need to vote to remove him from office.
  3. Ramaphosa could also be charged by either the exchange control (for not declaring the foreign currency holdings,) SARS (for not declaring the income,) or by the Hawks (for not following the correct procedure for reporting the crime.) This may then require him to “step-aside” according to ANC internal rules.

All the scenarios bring about uncertainty. And this uncertainty is not beneficial for the ANC and the country as a whole. There is a high chance that the ANC could lose its majority position in the next general elections. The political parties in SA will need to form coalitions to gain seat majority in parliament. How the parties cooperate in a coalition will be its own question.

Having a reasonable level of diversification in one’s portfolio thus provides some level of protection when an event such as the Phala Phala scandal occurs. Diversification can be attained through investing in different currencies, industries and/or asset classes; thus, avoiding country specific, industry specific or market specific events from negatively impacting one’s portfolio. In the Lunar BCI Worldwide Flexible Fund, approximately 60% of the portfolio is invested offshore.

Lunar Capital on Eastwave Radio

Every Tuesday, at 07h45, Sabir chats with Nazia from Eastwave Radio (92.2 fm, live stream on www.eastwave.co.za) on investing and the markets.

Listen to last week’s radio session here: https://youtu.be/N1mCJ8hyCNk

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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.
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Lunar Capital
on Eastwave Radio

Every Wednesday, at 07h45, Sabir chats with Nazia from Eastwave Radio (92.2 fm, live stream on
www.eastwave.co.za) on investing and the markets.

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