SA President Cyril Ramaphosa’s ANC may have tweaked the Donald Trump tiger’s tail once too often with the EWC Act drawing a strong reaction from the leader of the world’s largest economy. In this interview, Corion CIO David Bacher looks ahead with concern and back at a solid start to the year for South African assets. He spoke to BizNews editor Alec Hogg.
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Edited transcript of the interview
Alec Hogg (00:07.096):
David Bacher, the Chief Investment Officer of Corion Capital. As always, fresh into the new month, we take a look back at the month that was. Looking at January now.
Alec Hogg (00:22.68):
It’s been quite a start to the year. Donald Trump has moved into the White House. We can talk about the implications of this a bit later. It feels a bit like a David vs Goliath situation, with South Africa going toe to toe with the United States. I read somewhere this morning that the economy of Texas, just one state, is bigger than all of Africa, except for South Africa. So, 53 countries combined—that’s what we’re up against. But, it is what it is. We’ll talk more about that in a moment. Just to get back to the way you’re viewing things, David, are your clients concerned about what’s happening internationally and how it might impact their investments here in South Africa?
David Bacher (01:08.133):
They certainly are. I think most people we speak to understand that South Africa is linked to the West and to China. We don’t operate in isolation. So, our rhetoric and what’s happening overseas, and how we position ourselves as a country, are very important for our clients. It’s critical for the businesses they’re responsible for. So, it’s a delicate situation and one the South African government needs to think about carefully.
Alec Hogg (01:43.0):
Without exaggerating, when I came back from Davos, I thought, “Whoa, we’re in for a tough year.” South Africa seems to be heading in one direction, while the rest of the world is going in a completely different one. But let’s look back at January and what’s happened so far. You’ve chosen an interesting topic. I was in Plettenberg Bay over the weekend at Kierbomstrand, which is just outside of Plett. It was beautiful, with hardly any light pollution. You could see the stars clearly. You’ve picked a planetary alignment as your theme. Tell us more about why you chose that.
David Bacher (02:21.307):
Correct. What we always try to do at Corion is tie our report back to something topical that happened in the month. Aside from what you mentioned with Trump and politics, the theme for us this month is the celestial event—the planetary alignment where most of the planets aligned. It was a rare event, followed globally. So, we decided to base our theme around that this time.
Alec Hogg (02:51.476):
And take us through what’s been happening in the United States, especially the improvement in the major US indices.
David Bacher (03:00.817):
Yeah, so our first slide is titled “Sensational US,” and it highlights the meteoric rise of the US market. I was actually looking at some hard numbers recently. Over the last 15 years, the NASDAQ has compounded at 20% per year. To do that for such a long period of time—if you had invested a million rand 15 years ago, it would be worth 14 million rand today. That gives you a true understanding of how strong the market has been and how important compounding large numbers is over time. It’s been a sensational period for the US market, and it’s continued into this month.
Alec Hogg (03:52.452):
And if you didn’t invest in the US, if you kept all your money, say, in the Johannesburg Stock Exchange, have you looked at what that million rand would be worth now?
David Bacher (04:03.201):
Considerably less. I haven’t checked the exact numbers, but I’d be surprised if it’s half that. In dollar terms, it might be a third of that. It’s worth noting, though, that 15 or 20 years ago, China’s market was performing similarly to the US. If you look at what’s happened with China in the last 15 years, the market has essentially gone nowhere. That’s just a reminder that these things don’t necessarily continue. It’s been a historic rise for the US, but at some point, competition and valuations come into play. So, don’t assume the next 15 years will mirror the last.
Alec Hogg (04:58.446):
I suppose the counter-argument would be that when you have transformative changes in society, like the internet age, and now with artificial intelligence, the freer and more flexible economies, like the US, are more likely to benefit. Innovation is key, and America excels at fostering it. If you restrict people from innovating, like we’re seeing in some parts of the world, you might find yourself at a disadvantage.
David Bacher (05:44.945):
That’s a very well-made point. Trump’s in the White House with a “Drill, baby, drill” policy, which concerns many of us who know the world is getting hotter. But it seems like climate change doesn’t bother him too much. What’s your takeaway from all of that?
David Bacher (05:44.945):
It really shows how important policy is for investments. What we’ve shown in this slide is the performance of the Global Alternative Energy Index over the past three months—it’s down 20% since Trump came into power. So, even if you have great technology, a change in policy can dramatically shift what’s in favour. As you mentioned, the issue of global warming is becoming more pressing, and if alternative energy is no longer as topical as it was, its broader impact on climate and the environment will be significant.
Alec Hogg (06:25.86):
I wonder what people 20, 30, 50 years from now will say when they look back at this period. Will they say, “Donald Trump was right; the world was getting hotter anyway,” or will they say, “What a moron, we were on a path to address climate change, and now he’s set us back”?
David Bacher (06:51.203):
That’s a tough question. I can’t even get agreement in my family on policy, so imagine trying to get consensus on this! I do think, looking at the data, the recorded temperature changes over the last 50 years, there’s clear scientific evidence. Climate change is happening, but how severe it will be in the next 10, 15, 20 years is still debatable. But I personally believe climate change and rising temperatures are something we need to take very seriously.
Alec Hogg (07:46.24):
We had the hottest year on record last year, and I think the year before was the hottest year before that. So the data is pretty self-evident. However, there was another big shock to the system last month—this Chinese disruptor called DeepSeq shook up the AI industry. How serious is this?
David Bacher (08:25.113):
It’s very serious, and it ties nicely into your earlier comment about America being at the forefront of technology. These things can change quickly, though, and many people are referring to DeepSeq’s recent developments as a “Sputnik moment”—it’s akin to when the Soviet Union launched the first satellite in the late 1950s, which sparked the space race. If DeepSeq is as groundbreaking as some suggest, it could have huge consequences. For South Africa and developing nations, this is very exciting—it could make AI more accessible and affordable. If you look at the companies leading in AI, they’re trading at 26 times their annual sales, compared to the average S&P company, which is just 1.7 times. If a new technology comes in, even if it’s only a fraction of what it’s expected to be, that 26-times multiple could shrink very quickly.
Alec Hogg (10:00.366):
A 26-times sales multiple really does seem to be pricing in the Garden of Eden, arriving and staying indefinitely. Moving on to US GDP growth, which, unfortunately for South Africa, continues to outperform us. The US economy is about 75 times the size of ours. What’s going on there?
David Bacher (10:31.291):
The US GDP number came in slightly lower than expected—2.3% instead of the 2.6% that was forecasted. But, as you pointed out, for such a large economy to grow at that rate quarter after quarter is impressive. What’s especially surprising is that everyone was forecasting a recession when interest rates were raised so quickly and aggressively, but that hasn’t happened. The US is doing well—they’re leading in technology, their consumers are strong, and the Federal Reserve has acted wisely. All of this combined has helped the economy keep growing.
Alec Hogg (11:26.188):
How have equities, bonds, property, and gold performed in the past month?
David Bacher(11:31.537):
We titled this segment “Earthly Delights” because it’s nice to see all your asset classes in the green. The standout, particularly in the context of South Africa, was gold, which was up over 5%. That’s a big deal for our market, especially in the gold resource sector. Across the board, if you were an investor looking at your assets in dollars, you’d be pretty happy when you saw your valuation statements at the end of last month.
Alec Hogg (12:07.204):
So, across the board, it was green. The best performer was gold at just over 5%, equities were up 3%, property was up 1.5%, and bonds were up 0.5%. But here in South Africa, we’ve started to see a pullback, especially after Cyril Ramaphosa signed the Land Expropriation Act into law. Some people are very unhappy about it—it certainly feels like an attack on private property rights, which are one of the core foundations of a free society. David, how are you reading all of this?
David Bacher (12:50.939):
Let me start with a big disclaimer: I’m certainly no constitutional expert. But it’s important to note that the constitution does ensure that property can only be expropriated for public purpose, in the public interest, and with compensation. This compensation must be just and equitable. So, there’s some comfort there. We have a strong legal system that should protect the constitution. But what’s caused controversy is the no-compensation clause, which applies to land that isn’t actively being used. How that will be defined and how it will play out in the legal system still needs to be seen. But what’s clear is that this development doesn’t exactly scream, “Come invest in South Africa.” Especially when it doesn’t seem like there was broader consultation. So, it’s not a very positive outcome.
Alec Hogg (14:09.348):
The markets have been buoyant due to the Government of National Unity or the assessment by international investors that they’ve created a party to counterbalance the socialism of the ANC. That seems to have been shown to be not as strong as anticipated. What’s your take on South Africa’s performance in the past month?
David Bacher (14:31.473):
Yeah, we had a decent month. All our main asset classes were in the positive. Equities were up 2.6%, bonds were up 0.5%, and the rand was pretty stable. Investing can be a long game, but sometimes things happen quickly. As of the close of last month, things were looking good, but the world has changed quickly in the last two days. I saw that markets are down, the rand is weaker, and bond yields have risen by 20 to 30 points. This is a result of the factors we’ve just discussed. So, we’re facing some headwinds right now.
Alec Hogg (15:23.864):
So, January was a good month, but February has started off on a poor note. The stocks that did particularly well last month are unsurprisingly the gold stocks, given the 5% rise in the dollar gold price.
David Bacher (15:39.505):
Exactly. You look at Harmony, which was the best-performing share on the market, up 42%. AngloGold was up 34%, and Gold Fields was up 31%. These are significant moves. As a portfolio manager, when you have an index that’s 7% weighted to gold, the impact of not owning a gold share during a time like this can be huge. You could be a good stock picker, but if you miss out on these highly leveraged companies because of a macro event, your performance will suffer.
Alec Hogg (16:20.28):
And as for those stocks that went down?
David Bacher (16:24.133):
It was mostly interest rate-sensitive retailers. Mr. Price was down 15%, PEPCO was down 9%, and Discovery was down 7%. I don’t think it was anything major in terms of company announcements, though. Mr. Price did release a trading statement, but overall, these were stocks that had done very well the previous year. With the current conditions in the South African market, it’s not surprising to see some pullback.
Alec Hogg (16:59.908):
Why would Discovery be among those down? Could it still be impacted by the National Health Insurance (NHI) concerns?
David Bacher (17:09.115):
Potentially, but I think the NHI issue has been in the news for some time now. Discovery had a very good performance last year, so it’s possible that some profit-taking is occurring. There haven’t been any significant changes to the NHI policy recently, so I think it’s more about giving back some of those gains.
Alec Hogg (17:30.324):
Looking ahead to February, we haven’t had the best start.
David Bacher (17:35.377):
No, we haven’t. As I mentioned last month, this year is going to be full of headline risks—lots of “risk on, risk off” moments. But when things get tricky, there are often opportunities to invest. You look at the South African bond market, and you can get a real yield of 5% to 5.5% on some bonds, backed by the government. That’s a nice return. So, don’t be scared when there’s some turbulence. If you’re being compensated for that risk, it could be a good time to increase your exposure.
Alec Hogg (18:26.818):
And finally, David, there were many concerns during the load shedding period. Load shedding briefly came back last week but has since been suspended. How big of an impact is that on investment markets?
David Bacher (18:41.561):
As soon as load shedding was announced, you saw an immediate spike in bond yields—about 15 basis points. Ignoring its impact on job creation and small businesses, just the fact that the South African government has to fund itself at a higher cost—15 basis points higher—is an immediate red flag. It’s not a good development, and it will result in greater costs for South Africa.
Alec Hogg (19:09.422):
David Bacher is the Chief Investment Officer of Corion Capital. I’m Alec Hogg from BizNews.com.
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