Hi All,

I write this in sympathy with my fellow South Africans as we try to comprehend the scale and the intensity of the violence and looting that has gripped large parts of KZN and Gauteng. Just as evidence is starting to emerge that the 3rd wave of Covid infections may have peaked, and that our vaccine roll-out program is gaining momentum, the pandemic has moved off the front page of newspapers.

The arrest of former president Jacob Zuma for contempt of court was certainly the catalyst and proximal cause for the initial violence that ignited in KZN and spread. While much of the subsequent unrest appears spontaneous, there is emerging evidence of strategic infrastructure being targeted, suggesting some level of coordination. Investigations have been instigated into the behaviour of individuals aligned to the former president.

Whilst the brazen criminality is sickening, it is impossible to dissociate the febrile state of the nation with the desperate plight of many of our citizenry. Covid has placed an intolerable burden on many, where social conditions prior to the pandemic were stretched to the limit.  Nevertheless, no-one’s interests are served by this, and criminality cannot be tolerated.

It is clear that the immediate victims of this destruction will be the poorest and the most desperate.  Many woke up today with no infrastructure in place to obtain food and essential medication. Supply lines take time to re-establish, and it will take much reconstruction before destroyed commercial infrastructure can be replaced.  A pre-requite to reconstruction is the restoration of stability and law and order.

At times like this, the proximity of events in time and space may feel overwhelming.  It is often only possible to get a real perspective after things have subsided.  But the analysis of crisis over decades, whether global or local in nature, suggests that calm and objectivity always trump emotion and knee-jerk reaction.  It is often difficult when news flow is incomplete to really judge scale and impact.

What we know thus far is that the SA equity market has remained relatively stable and is still at approximately twice the level of the low point at the onset of the pandemic.  This suggests that markets do not yet see this as systemic – even the stocks of retailers that have borne the brunt of much of the destruction have fallen by far less than one might have imagined.  The rand, which as expected has weakened, is at levels that we were accustomed to only a few months ago.  Today, foreign investors are piling into our bonds.  Markets are information processors, and the relatively muted response so far is a positive indicator.

Many have, with good reason, criticised the response of the security cluster.  Regardless of the flaws, it is clear that everyone’s interests are at stake, whether they be the government, business or private citizens.  This means that the mobilisation of resources will happen quickly, as well as pragmatic measures to prevent ongoing contagion.  The hope is that we can move as quickly as possible to rebuild what is broken – not just shops and buildings and infrastructure, but also addressing the deep problems of inequality, poverty and unemployment that beset our society.

If anything, this is the wake-up call that social and economic  issues we face are everyone’s problem.  This is the clarion call to up the urgency and I think we will see a change in pace and pressure.

From a portfolio perspective, we went into the pandemic well-diversified and remain so, which has served us well.  It is also clear that investors who dumped risk assets last year during the initial phases of the pandemic fared very poorly.  Last year, we made significant changes to our non-reg 28 portfolios, upweighting our global exposures to diversify against SA idiosyncratic risks.  At the time, we made it clear that this was not a bet against prospects in South Africa, but a common-sense move driven by portfolio construction considerations.  We will process information as it becomes available but remain persuaded that a level-headed approach to strategic diversification is a superior long-term strategy to tactical juggling.

This is a trying time as many families grieve.  I guess it is also a great time to reveal our humanity and our compassion.  Tragedy plays out in unexpected ways and adversity is often a great unifier – we must work to make sure it is, not only in our actions but in our utterances.  Words have weight for good and ill and we should use them wisely.

The team here at PMX is positive and doing well.  Many people feel quite isolated with lock-down and just need someone outside their bubble to chat to.  Please pick up the phone – we are all here for you.

Stay safe, stay positive and get ready to roll up your sleeves.  We have some nation building to do.