In this report, we discuss Economic-, Political- and Market events for the fourth quarter of 2018. We explain what happened, the impact on South Africans, the insights of experts and what you can do.

What happened globally?

China-USA Trade War

Conflict, US-China Trade War

U.S. President, Donald Trump, initiated the trade war in 2017 citing unfair trading practices, including accusations that Chinese companies were stealing intellectual property from American firms. Mr. Trump has complained about China’s trading practices since before he took office in 2016.

So far, the U.S. has imposed three rounds of tariffs on Chinese goods, totaling more than $250bn. China responded by imposing tariffs on $110bn worth of US goods.

On 30 November 2018 – 1 December 2018, Mr. Trump and Chinese President, Xi Jinping, met at the G20 summit in Argentina to discuss trade. Both countries agreed to halt new trade tariffs for 90 days to allow for talks.

They imposed a deadline of early March to resolve their differences, or the battle may heat up again. Trump had planned to raise tariffs to 25% from 10% on $200bn worth of Chinese imports into the U.S. if an agreement between the world’s two largest economies were not reached by Friday, 1st of March 2019.

On Sunday, 25 February 2019, President Donald Trump said he would delay an increase in U.S. tariffs on Chinese goods thanks to “productive” trade talks, and that he and Chinese President Xi Jinping would meet to seal a deal if progress continued.

The announcement was the clearest sign yet that China and the U.S. are closing in on a deal to end a months-long trade war.

The figure below illustrates the current U.S. and China’s tariffs against each other.

US-China Trade War
US-China Trade War

Impact on South Africans:

South Africa, like other emerging economies, relies on a strong Chinese economy to stimulate our demand for raw materials. China’s exports slowed down significantly, having a negative impact on South African Equities. Top shares on the JSE (Naspers, Billiton, Richemont) rely on Chinese consumers.

The International Monetary Fund says an escalation of the trade war could shave 0.5% off global growth by 2020. Morgan Stanley said that most of the effect from tariff hikes on growth would probably be seen only in 2019. The impact would come through disruption of domestic and international supply chains, the bank added.

According to Fitch ratings, tariffs cause higher import prices, raising firms’ costs and reducing real wages. This dampens business confidence and equity prices, further weighing on business investment and reducing consumption.

South Africa relies on foreign investments and is adversely affected by low business confidence.

 Turkey Crisis

Turkey Crisis

In 2018, the lira has lost more than 35 percent of its value against the U.S. dollar. This increased Turkey’s inflation to 25% in October 2018, which has come down since to 20,35% in January 2019.

This crisis began days after U.S. President Donald Trump announced via Twitter a doubling of steel and aluminum tariffs on Turkey.

Turkish authorities arrested American Evangelical Christian pastor Andrew Brunson in 2016 as part of a sweeping crackdown after a failed military coup in July that year. Brunson was among thousands arrested, including journalists, activists, and opponents of President Erdogan.

U.S.–Turkey relations were already tense because of U.S. support for Kurdish forces fighting in Syria, whom Turkey president Recep Tayyip Erdogan considers terrorists.

Brunson’s case increased the tension when it mobilized evangelicals in the U.S., who said he was being persecuted for his Christian faith. In July 2018, U.S. Vice President and evangelical Christian, Mike Pence, attended a three-day conference on religious freedom at the State Department.

After the summit he tweeted:

Mike Pence Tweet
Mike Pence Tweet

A week later trump followed through Pence’s threats a week later, sanctioning two high-ranking Turkish officials and imposing tariffs on imports of Turkish steel and aluminum.

He later doubled them.

Trump tweet - Turkey Tariff
Trump tweet – Turkey Tariff

The issue Erdogan most urgently has to confront is cash.

According to JPMorgan, $179 billion in Turkish foreign debt matures in the year to July 2019. $146 billion of this debt is owed by the private sector – especially Turkey’s banks.

These banks borrowed abroad but often earns mostly in lira, burdening them with a severe debt mismatch given the plummeting currency.

Impact on South Africans:

Turkey’s economy, which is heavily reliant on foreign currency loans, could affect other emerging markets.

When global investors get nervous, they dump anything deemed even faintly risky, particularly emerging market shares, bonds, and currencies.

South Africa is one of the first affected because the local economy is not looking good.

Also, importantly, the rand gets hit first because it is a very liquid currency. This means that traders know they can get in and out of the rand very quickly as there are massive amounts being traded in the rand every day. In fact, the rand is the 20th most traded currency in the world.


EU Monster falling apart

On Thursday 23 June 2016, a referendum was held to decide whether the UK should leave or remain in the European Union. Leave won by 51.9% to 48.1%. Brexit negotiations have been on-going ever since.

For the UK to leave the EU it had to invoke Article 50 of the Lisbon Treaty which gives the two sides two years to agree on the terms of the split. Theresa May triggered this process on 29 March 2017, meaning the UK is scheduled to leave at 11 pm UK time on Friday, 29 March 2019. This is regardless of whether there is a deal with the EU or not.

Brexit is likely to push Germany and France back to the EU’s center stage and provide the two powers with the opportunity to play a pivotal role in the EU27. But a common bid for a renewed Franco-German leadership will not go unchallenged.

Germany’s GDP Annual Growth Rate has slowed down from 2.8% in January 2018 to 0.6% in January 2019. Their interest rate is at 0% which means that cannot decrease interest rates to stimulate growth.

Italy is currently in a recession. Italian governments have said cutting the debt burden is the main priority. The EU said a reduction is needed to boost the country’s economy.

Impact on South Africans:

The stability of the EU will impact the exports from South African to Eurozone countries. Uncertainty caused by political and economic factors decreases consumer and investor confidence. We see this in the slowdown of EU GDP Annual Growth Rate from 2.8% in August 2017 to 1.6% in January 2019.

This illustration below indicates the sizes of countries’ economies.

Breakdown of world economy - 2018
Breakdown of the world economy – 2018

The 3 biggest economies – EU, USA and China – represent 55% of the world economy. The economic slowdown in all 3 economies resulted in a global economic slowdown.

These economic slowdowns can be attributed to the uncertainty caused by economic and political tensions discussed above. This is also reflected in the data: 

Global Policy Uncertainty
Global Policy Uncertainty


World Exports as % of world GDP
World Exports as % of world GDP


What happened at home?

SA Flag

Economic Growth

South Africa’s economy appears to be slowly turning the page from last year’s short-lived recession.

Correction in fuel costs in December sent inflation tumbling towards the South African Reserve Bank’s (SARB) midpoint target in December. Meanwhile, economic sentiment notched a recovery through year-end in line with stabilizing manufacturing-sector gains.

In 2018 South Africa grew at 1%, due to a consistent positive disposable income – most people’s salary increases exceed inflation. Consumers should save money, but everything goes to shopping. Consumers don’t stop spending even if their income decreases. In November alone personal loans increased by R 10 billion. This great for SA’s GDP, but not sustainable for consumers due to rising household debt levels.

Companies have struggled over the last few years and started to reduce cost. This does not help South Africa’s unemployment rate, currently at 27,1%.

SA Consumer Disposable Income
Source: Stanlib Decoding 2019 Seminar (19 February 2019)



Troubles at Eskom have sparked rolling blackouts and its crippled finances could potentially destabilize the economy. Eskom has a money problem and an inefficiency problem.

An investigation is being done by the Zondo commission into state capture and guilty parties are being prosecuted.

On 20 February 2019, Tito Mboweni delivered his budget speech where he addresses financial issues around Eskom. Spending has been reprioritized to cater for Eskom’s cash injection with strict conditionality.


Resilient REIT

Local Property is down 25,3% in 2018. Prior to 2018, the property sector beat all other local asset classes. The impact of stock-specific declines last year combined with a low-growth environment resulted in listed property experiencing its worst calendar year return since the inception of the South African property index (Sapi) in 1993.

Some of the company-specific issues include the Viceroy allegations about the Resilient group of companies, which prior to their collapse comprised more than 40% of the Sapi.

The more recent rumors around Nepi Rockcastle (also part of the Resilient group of companies) and a potential takeover bid for Intu Properties falling through resulted in the stock losing more than 45% in November alone, according to Visagie.



What are the experts saying?

South Africa’s stabilization is a result of:

Local Factors

  • Business and consumer confidence are improving.
  • There are improvements in manufacturing, mining, and agriculture.
  • Lower fuel prices and inflation increases consumer disposable income.
  • Further interest rate and tax hikes are unlikely.
  • Low levels of household and corporate debt

External Factors

  • China is recovering.
  • The US Dollar is weaker.
  • The Fed is on hold for further interest rate increases


Risks to this stability:

  • Eskom’s impact on growth and electricity tariffs.
  • Moody’s downgrade
  • Trade conflict escalates


Reason for optimism:


  • SARS is being cleaned up. Tom Moyane, ex-commissioner of SARS, has been suspended.
  • President Cyril Ramaphosa’s Investment Summit in October 2018 saw the presence of companies like Amazon and Alibaba in attendance, which indicates increased business confidence.
  • A new CEO, Phakamani Hadebe, has been appointed at Eskom by President Ramaphosa.
  • 8 Senior executives of Transnet have been suspended for misconduct and mismanagement. More suspensions are likely to follow.
  • President Ramaphosa aims to get SA in the top 50 of global ranking of ‘ease of doing business’ in 3 years (currently 82nd). This will improve business confidence and increase foreign investment.
  • The president is taking action to improve SA. It will take time for these actions to reflect increased business confidence.



 What can you do?

Financial adviser consulting

  1. Establish clear investment goals.
  2. Sit down with a financial planner to formulate an investment strategy.
  3. Ensure that you understand how your strategy aims to achieve your goal – then stick to it.


Despite negative returns in 2018, all funds & industries outperforming CPI over a 10 year period – It pays to stay invested.

The figure below illustrates the importance of consistent positive returns over high outperformance.

Loss VS Returns Required
Loss VS Returns Required

At TVC we manage our own Wrap Funds that consists of a combination of diverse funds managed by industry-leading asset managers. We have quarterly meetings with these specialists where we analyze these funds and make the necessary adjustments.

The benefits of INVESTING IN  OUR FUNDS include:

  • Investing in funds at below retail cost.
  • Investing in funds only available to institutions.
  • Reduces risk through diversification of asset managers.
  • Quarterly revisions by a dedicated professional investments team.
  • Quarterly feedback on economic and political developments.
  • Comprehensive revision on your portfolio with advanced analytics.


Give us a call or send us an email to request meeting where we can discuss your investment needs.

Contact Us



Source References:


Trump urged to stay tough over China trade deal

Trade wars, Trump tariffs, and protectionism explained

A quick guide to the US-China trade war

Donald Trump Delays Tariffs On Chinese Goods After Productive Talks

The early victims of Trump’s trade war

Trade War Escalation To Negatively Impact SA’s GDP Growth – Fitch

Turkey lira crisis: Six things you need to know

Who is Andrew Brunson, the Evangelical Pastor Freed in Turkey?

Turkish inflation rate dips from peak of over 25%

Trading Economics – Turkey Inflation

Erdogan has limited options to save Turkey from financial crisis

5 reasons why Turkey is in crisis and why the Rand is bleeding too

Brexit: All you need to know about the UK leaving the EU

France and Germany will dominate the EU after Brexit, but they won’t go unchallenged

Trading Economics – Germany GDP Annual Growth

Italy’s 2018 Debt Load Likely Rose Less Than Government Forecast

Trading Economics – Italy GDP Growth

Trading Economics – Country-list Unemployment Rate

Focus Economics – South Africa Economic Outlook

Petrol price for December 2018: South Africa vs the rest of the world

SA Commercial Property Market takes a beating


On Wednesday 13 February 2019, TVC sat down with our World Class Investment team at Glacier to review recent economic occurrences and discuss how this impacts our clients’ portfolios.

We attended PPS Investments Talking Points Roadshow on 6 February 2019, where we gained valuable insights from a political journalist, Ferial Haffajee, into the political and economic landscape facing South Africa in 2019.

At STANLIB’s “Decoding 2019” Roadshow, Kevin Lings (STANLIB’s Chief Economist) highlighted potential risk and opportunities in the global and domestic economic landscape.


This article provides information about economic events/trends that occurred in the fourth quarter of 2018, as well as the opinions of experts on the impact of these events/trends.

This article is not intended to forecast any future economic/political events/trends.

The effect of these events/trends will be different on each investor based on their investment goals and existing portfolio.

Always consult a financial adviser when making investment decisions.


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