Latest news with #NinetyOne
Daily Maverick
11 hours ago
- Business
- Daily Maverick
Capital vs trade: The stark economic divide threatening South Africa's future prosperity
Dr Michael Power recently retired from Ninety One where he was the Global Strategist for most of the past two decades. He remains a Consultant to Ninety One. Prior to Ninety One, he had worked in London, South Africa and Kenya for Anglo-American, Rothschild, HSBC Equator and Barings. He has a PhD from UCT, a master's from the Fletcher School at Tufts and a bachelor's from Oxford. His primary focus today is doing research into the emerging field of geo-economics focussing in particular on the global implications of the return of the economic centre of gravity to a China-centred Asia. In an international context and given the type of factory jobs that our pool of unemployed labour would be qualified to undertake so they might manufacture products for export, most of our available labour reserve is currently priced out of the global wage hierarchy. Last month, under the series title 'Elegy of a Tragedy Foretold ', Daily Maverick kindly published my Ninety One swansong. Central to my thesis was that the US has become addicted to breathing the heady 'Atmosphere of Capital', a dependency that has correspondingly damaged US Inc's ability to participate meaningfully in the lower pressure of the 'Atmosphere of Trade'. Result? Severe damage has been inflicted on US Inc because of capital inflows hijacking the US dollar to a far higher level than would allow US Inc to prosper in that Atmosphere of Trade. In essence, the US has contracted a severe case of the Dutch Disease. But the American variant has resulted not through exporting a commodity like oil or gas, but through exporting its currency in the form of a US Treasury Bill. In a 2019 Financial Times opinion titled ' How to diagnose your own Dutch Disease ', Brendan Greeley noted that 'around 1980 the United States discovered that it was the Saudi Arabia of money'. (To understand my American thesis more fully, it might be useful for the reader to refer back to this five-part essay which can be found here: Part 1, Part 2, Part 3, Part 4 and Part 5.) The core of my proposition is that even as the US might appear to 'win' through its capital account surplus (65% of the MSCI's ACWI equities index is weighted towards the US), America is 'losing' through its trade deficit (65% of the world's current account deficits in 2024 were created by the US). Profoundly negative Structurally, America's trade deficit losses have had a profoundly negative effect on the economic framework and wellbeing of the US… as well as visibly poisoning American politics. Indeed, as was foretold in JD Vance's 2016 book 'Hillbilly Elegy ', the divisive political tragedy now playing out in America has its roots in this capital account rich/trade account poor paradox. It has occurred to me that South Africa might have suffered a not too dissimilar fate to the US. Have we also become a country where the capital tail wags the trade dog? Despite the standard definition, our variant of the Dutch Disease has not happened because South Africa — by being mostly a commodity exporter — has caught the original version of the Dutch Disease. That occurred when a high percentage of the Netherlands' exports and so trade account earnings were commodity-related; in the Dutch case, the infection was caused by North Sea gas. In the 1970s, when an oil and gas price bonanza dramatically drove up Dutch terms of trade, so dragging the value of the Dutch guilder considerably higher as well, the industrial export sectors of the Netherlands became uncompetitive, and deindustrialisation swiftly followed. South Africa's variant of the Dutch Disease is closer to that contracted by the US. Given the precarious economic status that a liberated South Africa inherited in 1994, our recurring and so structural current account deficit has meant that, were we to avoid a currency crisis, we needed to attract meaningful foreign money inflows via our capital account to offset our underlying trade and current account deficits. The inflows we attracted have not, to any material degree, been foreign direct investment (the FDI that builds factories, so creating jobs), but rather mostly foreign portfolio investment (the FPI directed at our equity and bond markets). And a material share of these FPI inflows went into Government Bonds to help fund South Africa's ongoing budget deficit. (This speaks to why maintaining South Africa's Sovereign Debt Rating as high as possible — it is currently BB- or BB2 — is such a sensitive issue for our Treasury and Reserve Bank.) Yet for SA Inc, these foreign portfolio investment inflows have very possibly distorted the South African rand's valuation in foreign exchange markets, keeping it materially higher than it would otherwise have been had the quantum of those inflows not been forthcoming. De-industrialisation As a result, since 1994 (or more precisely 1995 when South Africa joined GATT, now the WTO, thus removing what little remaining protection our domestic industries had against foreign competition), echoing what happened in the US, South Africa de-industrialised. (So keen were we back in 1995 to fall into line with GATT's provisions to 'open up' that South African industrialist Leslie Boyd bemoaned that we 'outGATTed GATT'!) So what has been the fallout? We now have probably the highest unemployment rate in the world. Each week The Economist publishes the key economic metrics of the top 42 countries in the world. South Africa's stated unemployment rate — 32.9% — is over three times the next highest country's rate: Spain with 10.9%. I have long maintained that, in an international context and given the type of factory jobs that our pool of unemployed labour would be qualified to undertake so they might manufacture products for export, most of our available labour reserve is currently priced out of the global wage hierarchy. Like for like, South African wage rates for semi-skilled labour, when measured in Bangladeshi taka or Sri Lankan rupees, are very uncompetitive. Our minimum wages rates are 2.3x those of Bangladesh and 4.2x those of Sri Lanka. I am sure most readers of Daily Maverick will find the consequences of my logic — that even if the South African rand is fairly valued by markets in the Atmosphere of Capital, it is significantly overvalued in the Atmosphere of Trade — hard to stomach. I know — having worked in South Africa's fund management community for more than 20 years where we lived, breathed and even spoke the language of the Atmosphere of Capital every day — many of my erstwhile colleagues take issue with the implications of my reasoning. (For every 20 opinions on why the rand 'should be stronger', there was only ever one opinion about how to reduce South Africa's unemployment!) But I fear this sharp difference of opinion only goes to highlight South Africa's two-tier economy: that stark division between our 'haves and the have nots'. This gulf gives us the highest wealth inequality (as measured by the Gini coefficient) in the world. It is telling that, in that same ranking, other rand monetary area nations, Namibia and Eswatini, rank 2nd and 4th respectively; Botswana — whose currency basket is estimated to have a 50% rand weighting — is 5th. At the risk of oversimplifying, we 'haves' prefer to breathe the Atmosphere of Capital. We benchmark our values — in both senses of the word 'value' — against Western metrics. Indeed, most of us seem largely unaware that there might be another 'atmospheric pressure' out there in today's world that other regions of the non-Western world breathe. (Perhaps we might encounter that 'thinner air' — that relative cheapness — were we to holiday in Kenya or Indonesia.) Economically relevant Still, most of South Africa's 'have nots' have no option but to stay tied up in the straitjacket of the Atmosphere of Capital when — if they were to stand a chance of being globally economically relevant by securing an export-oriented job — they should instead be allowed to breathe the Atmosphere of Trade. And whether South Africa's 'haves' and even its 'have nots' realise it or not, the metrics determining the atmospheric pressure of the Atmosphere of Trade are not made in America or Europe, but in Asia or, even further north of us, in East and West Africa. South Africa is a heavily 'financialised' economy, a telltale sign that might indicate we breathe the Atmosphere of Capital rather than that of Trade. The JSE's market capitalisation as a percentage of GDP — at 321% in 2022 — is the second highest in the world. Only Hong Kong — with its raft of Chinese listings trading on the HKSE's H-share platform — had a larger ratio: 1,110%. South Africa — the world's 39th largest economy — also has in value terms in the rand, the 20th most traded currency as well as having the 21st most traded bond market. These otherwise impressive financial statistics obscure the less flattering economic metrics that lie beneath: our depressingly low GDP growth, chronically high unemployment and rising national debt. Our glossy financial ratios also offer cover to the dire status of the economic debate in South Africa: the hard truth is that it has become sterile and is running out of ideas. Judging by our recent economic performance, to paraphrase an advertising slogan from Margaret Thatcher's 1979 election campaign, 'South Africa isn't working'. Why? Because in the precise words of that slogan, our ' Labour isn't working'. Yet few economic commentators in either our public or private sectors want to risk rocking our financial boat even if, deep down, the conventional — and now ossified — economic wisdom as to how we might better run our economy is in fact a critical part of our problem. In the end, I maintain it comes down to a stark choice: Should South Africa's economy be run so that it benefits those few of us living in the Atmosphere of Capital? Or should it be run for the benefit of those many that might have a better chance of succeeding breathing the Atmosphere of Trade? The unsavoury truth is that as things stand, our economic frog is slowly but surely boiling and doing so in sterile policy water. Yet to us 'haves', were we to remove those rose-tinted glasses we traditionally use to gaze fondly upon our Western idols, we would realise that the economic debate in the West has become stultifyingly sterile too. Boa constrictor logic There, the boa constrictor logic of deteriorating demographics plus stagnant GDP growth plus rising national debt is slowly but surely squeezing the life out of many Western economies. Taking on more national debt — which even the erstwhile prudent Germans have now opted to do — is surely but another step along the West's highway to hell. And Western bond markets — including those of Japan — are starting to hint to investors of what torment lies ahead. So too is the rising price of gold. My fear is that those who count in the formulation of South Africa's economic policy might read my words and either reject them out of hand… or simply ignore them. But then that is what happened in the US when Cassandras ranging from Bob Dylan to Vaclav Smil warned what would happen if the US were to deindustrialise. Yet so few US politicians or economists paid heed! (Cassandra was a Trojan Princess cursed by Apollo to be able to predict the future accurately, but have no one believe her.) It is essential that South Africa's policy makers listen to other views on how we might chart a more prosperous way forward. Most historians agree that it was Einstein who said: 'The definition of insanity is doing the same thing over and over again and expecting different results.' DM
Yahoo
3 days ago
- Business
- Yahoo
Trump's tax bill is undermining the foundations of global finance
For decades, investors have been able to rely on a simple truth: the US bond market is a safe place to put money. When wars broke out, economies crashed or other calamities struck, money flowed into US Treasuries, as Washington's bonds are known, to protect wealth. As a result, the US has been able to rely on a ready supply of investors willing to fund the country's ever-increasing appetite for tax cuts and public spending. Investors wanted US debt and the federal government was only too happy to provide it. Not even half a year into Donald Trump's presidential term, however, decades of orthodoxy are being turned on their head. 'The US has generally benefited from demand for Treasuries from overseas investors. It's viewed as the global risk-free asset,' says John Stopford, a fund manager at Ninety One. 'The concern is that a lot of those beliefs or tenets about the US are being called into question, in terms of how reliable, how safe an investment are US Treasuries?' Offshore investors, battered by volatility and bewildered by uncertainty since Trump took office, are becoming increasingly wary of the US bond market. Returns have suffered as Trump's trade policies have weakened the dollar and the president's planned debt splurge has raised questions about just how sustainable US borrowing really is. The latest flash point is Trump's 'big, beautiful' tax and spending bill, which the Congressional Budget Office said would add $2.4 trillion (£1.8 trillion) to the deficit over the next decade. Elon Musk might have hogged the headlines this week with his outbursts against the bill but investors and traders are airing the same concerns, especially as higher deficits mean the US treasury will be asking them to buy more and more of its bonds. 'We're seeing it in the asset management community, some insurance funds, some pension funds, and foreign investors overall as well. It's just more caution in the buying, rather than a full-blown 'sell everything',' says Gennadiy Goldberg, head of US rates strategy at TD Securities. A crisis in the US bond market, or even just a slow ebbing of investor confidence and faith, could be the most profound and revolutionary legacy of Trump's second term. The US market and its currency might no longer offer the safe haven against risk, nor the anchor for markets worldwide. An end of this financial exceptionalism would mean higher borrowing costs for the US and pose a challenge to the entire American economy model. Moody's became the last major credit rating agency to strip the US of its gold-plated borrower status last month and analysts have raised the prospect of Trump facing his own 'Liz Truss moment' as investors baulk at his spending plans. For now, concern is centred around where all this fiscal ill-discipline will leave the US in the 2030s and beyond. So investors are shying away from longer-dated Treasuries with terms such as 10, 20 or 30 years, and parking their money in shorter-term bonds that mature in one or two years. 'I see investors who are even cautious about the five to 10-year space,' Goldberg says. If this caution turns to panic, then a meltdown – with worldwide consequences – isn't out of the question. 'If there was a big deleveraging that happened – and there was a big source of selling, whether it's from foreign investors or hedge funds or levered investors or basis investors – it could potentially overwhelm the system,' Goldberg says. Foreign investors are also having to contend with a big drop in the US dollar, which is reducing their returns. 'It's fine to see bond yields rise if the currency is stable or appreciating. That's not what we're seeing at the moment. We're seeing bond yields rise in the US, and actually the currency, on a broad basket, is about 10pc down from its highs last year,' says James Ringer, a Schroders fund manager. The lack of buyers and the potential glut of bonds raises the possibility, or 'tail risk', that the market could cease to function properly. 'That would mean sellers overwhelming buyers,' says Goldberg. This could drive a sharp surge in rates and force an emergency intervention from the Federal Reserve. 'That is the risk going forward – that the system is unable to function if something goes wrong,' he adds. At the moment, there's little prospect of a panicked sell-off – mainly because investors have so few genuine alternatives. America's star may be on the wane but it is still the brightest light in the sky. 'The US is absolutely a mass market in terms of marketable debt. The second and third closest markets are an order of magnitude smaller, so that makes it really difficult for a lot of these investors to really get away from dollars,' says Goldberg. 'There's just no place for them to go.' But equally, with Trump at the helm, nobody is ruling anything out. 'Even if it's a tail risk or something that's unlikely, because it's there at the back of people's minds, potentially they do begin to change their behaviour,' Stopford says. 'They do begin to think, 'OK, well, I should have less exposure to the US, I should have less exposure to the dollar, I should be looking for alternatives that are safer, more reliable.' 'That's not bond vigilantes speculating. That's just people making rational decisions based on concerns about risk.' Scott Bessent began the week by telling the world: 'The United States of America is never going to default. That is never going to happen.' The comments to CBS News were meant to reassure. But the sheer fact that the US treasury secretary had to spell out something that has been taken for granted for decades highlights the fact that the fundamentals of the US financial system have been shaken. Whether they go on to crumble depends on what Trump does next. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Sign in to access your portfolio
Telegraph
4 days ago
- Business
- Telegraph
Trump's tax bill is undermining the foundations of global finance
For decades, investors have been able to rely on a simple truth: the US bond market is a safe place to put money. When wars broke out, economies crashed or other calamities struck, money flowed into US Treasuries, as Washington's bonds are known, to protect wealth. As a result, the US has been able to rely on a ready supply of investors willing to fund the country's ever-increasing appetite for tax cuts and public spending. Investors wanted US debt and the federal government was only too happy to provide it. Not even half a year into Donald Trump's presidential term, however, decades of orthodoxy are being turned on their head. 'The US has generally benefited from demand for Treasuries from overseas investors. It's viewed as the global risk-free asset,' says John Stopford, a fund manager at Ninety One. 'The concern is that a lot of those beliefs or tenets about the US are being called into question, in terms of how reliable, how safe an investment are US Treasuries?' Offshore investors, battered by volatility and bewildered by uncertainty since Trump took office, are becoming increasingly wary of the US bond market. Returns have suffered as Trump's trade policies have weakened the dollar and the president's planned debt splurge has raised questions about just how sustainable US borrowing really is. The latest flash point is Trump's 'big, beautiful' tax and spending bill, which the Congressional Budget Office said would add $2.4 trillion (£1.8 trillion) to the deficit over the next decade. Elon Musk might have hogged the headlines this week with his outbursts against the bill but investors and traders are airing the same concerns, especially as higher deficits mean the US treasury will be asking them to buy more and more of its bonds. 'We're seeing it in the asset management community, some insurance funds, some pension funds, and foreign investors overall as well. It's just more caution in the buying, rather than a full-blown 'sell everything',' says Gennadiy Goldberg, head of US rates strategy at TD Securities. A crisis in the US bond market, or even just a slow ebbing of investor confidence and faith, could be the most profound and revolutionary legacy of Trump's second term. The US market and its currency might no longer offer the safe haven against risk, nor the anchor for markets worldwide. An end of this financial exceptionalism would mean higher borrowing costs for the US and pose a challenge to the entire American economy model. Moody's became the last major credit rating agency to strip the US of its gold-plated borrower status last month and analysts have raised the prospect of Trump facing his own ' Liz Truss moment ' as investors baulk at his spending plans. For now, concern is centred around where all this fiscal ill-discipline will leave the US in the 2030s and beyond. So investors are shying away from longer-dated Treasuries with terms such as 10, 20 or 30 years, and parking their money in shorter-term bonds that mature in one or two years. 'I see investors who are even cautious about the five to 10-year space,' Goldberg says. If this caution turns to panic, then a meltdown – with worldwide consequences – isn't out of the question. 'If there was a big deleveraging that happened – and there was a big source of selling, whether it's from foreign investors or hedge funds or levered investors or basis investors – it could potentially overwhelm the system,' Goldberg says. Foreign investors are also having to contend with a big drop in the US dollar, which is reducing their returns. 'It's fine to see bond yields rise if the currency is stable or appreciating. That's not what we're seeing at the moment. We're seeing bond yields rise in the US, and actually the currency, on a broad basket, is about 10pc down from its highs last year,' says James Ringer, a Schroders fund manager. The lack of buyers and the potential glut of bonds raises the possibility, or 'tail risk', that the market could cease to function properly. 'That would mean sellers overwhelming buyers,' says Goldberg. This could drive a sharp surge in rates and force an emergency intervention from the Federal Reserve. 'That is the risk going forward – that the system is unable to function if something goes wrong,' he adds. At the moment, there's little prospect of a panicked sell-off – mainly because investors have so few genuine alternatives. America's star may be on the wane but it is still the brightest light in the sky. 'The US is absolutely a mass market in terms of marketable debt. The second and third closest markets are an order of magnitude smaller, so that makes it really difficult for a lot of these investors to really get away from dollars,' says Goldberg. 'There's just no place for them to go.' But equally, with Trump at the helm, nobody is ruling anything out. 'Even if it's a tail risk or something that's unlikely, because it's there at the back of people's minds, potentially they do begin to change their behaviour,' Stopford says. 'They do begin to think, 'OK, well, I should have less exposure to the US, I should have less exposure to the dollar, I should be looking for alternatives that are safer, more reliable.' 'That's not bond vigilantes speculating. That's just people making rational decisions based on concerns about risk.' Scott Bessent began the week by telling the world: 'The United States of America is never going to default. That is never going to happen.' were meant to reassure. But the sheer fact that the US treasury secretary had to spell out something that has been taken for granted for decades highlights the fact that the fundamentals of the US financial system have been shaken. Whether they go on to crumble depends on what Trump does next.
Yahoo
5 days ago
- Business
- Yahoo
Ninety One PLC (FRA:3XH) (FY 2025) Earnings Call Highlights: Strategic Growth Amidst Market ...
Release Date: June 04, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Ninety One PLC (FRA:3XH) recorded positive net flows in the second half of the year, reversing the negative trend from the first half. Assets under management increased by 4% to 130.8 billion pounds, indicating growth in the company's asset base. The company has opened two new offices in the Middle East, expanding its geographical footprint and intensifying activity in the region. The transaction with Sunamm is expected to grow assets under management by approximately 17 billion pounds and offers preferred access to their distribution network. Ninety One PLC (FRA:3XH) has been actively investing in AI and technology to enhance efficiency and effectiveness, positioning itself as a future-ready investment manager. Net outflows were 4.9 billion pounds, although improved from the previous year's 9.4 billion, still indicating challenges in retaining client assets. Basic earnings per share declined by 7% to 17.2% per share, and adjusted earnings per share declined by 3% to 15.5%. The full year dividend decreased by 1% to 12.2%, reflecting a reduction in shareholder returns. The adjusted operating profit margin decreased from 32% to 31.2%, indicating pressure on profitability. The company faces intense competition for client assets and pricing pressure in the market, which could impact future growth and profitability. Warning! GuruFocus has detected 6 Warning Signs with FRA:3XH. Q: Good to see the second half turning mildly positive. Do you think we've turned a corner now, and how much of the improvement is driven by a rotation of possibly the US into more international and emerging market products? A: There are two trends. Firstly, existing clients are re-weighting their portfolios, showing interest in active long-only equities. Secondly, there's increased interest in the emerging market complex, though it's still challenging due to geopolitical factors. The structural research and engagement have increased, but it's unclear if this is a rebalancing or structural growth. The US market's re-weighting could be significant, especially with a weakening dollar. Fixed income diversification might become more compelling in the future. Q: On the operating margin, it came in at 31.2%. Is 31% the floor? A: We do not target a specific operating margin. Given market volatility, we maintain flexibility. We have levers to keep it within a comfortable range, but we don't run for a specific margin. Technology is helping manage structural cost inflation, and we are comfortable with our current position. Q: Can you share some client feedback on the Sunlam deal? A: We haven't interacted directly with third-party clients due to competition regulations, but our client base understands the logic and sees it as complementary. The relationship with Sunlam is strong, and the contractual negotiations are complete. We expect to access excellent talent and see long-term benefits from this 15-year relationship. Q: Asia Pacific was a big swing factor in the second half. Can you elaborate on what's driving this? A: The economic gravity is shifting east, and savings pools are growing. We have an installed base of clients who are up-weighting based on good past performance and service delivery. Our new offices in the Middle East are also part of our strategy, though they haven't yet impacted the top line. Q: On the fee rate, it dropped over the year. What's driving this? A: The drop is due to large clients coming in with lower fees but high profit margins. The Americas, with higher fees, could balance this if they start running. The fee rate is influenced by client mix and geographic factors, and we maintain a thoughtful approach to pricing. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
IOL News
6 days ago
- Business
- IOL News
Ninety One's assets under management rise 4% amid challenging market conditions
Ninety One's CEO Hendrik du Toit said the group regained positive funds flow momentum on the second half of its financial year to March 31, 2025. Image: Supplied Ninety One's share price was one of the biggest movers on the JSE Wednesday after it announced an increase in global assets under management by 4% to £130.8 billion (R3.15 trillion) in the year to March 31, buoyed by a stronger second half performance. Full year net outflows for the JSE- and London-listed group that was spun off Investec in 2020 came to £4.9bn, following first half net outflows of £5.3bn and net inflows of £0.4bn in the second half. The share price gained up to 6.7% on the JSE to R41.54 on Wednesday, bringing the year-to-date gain to over 13%. 'Ninety One regained positive flow momentum in the second half. Business conditions improved in the final quarter,' founder and CEO Hendrik du Toit said at the release of the results. He added in a statement it was a 'robust financial performance,' with an operating profit margin of 31.2%. A final dividend of 6.8 pence was declared, bringing the full year payout to 12.2 pence a share. 'Conditions remain challenging, but business momentum has improved,' said Du Toit. With a 32.6% shareholding, their staff were motivated and committed, he said. Average assets under management increased 4% to £129bn. Du Toit said their previously announced transaction with Sanlam is on track. 'While we expect economic uncertainty and market volatility to persist, we are encouraged by early indications that demand is shifting towards our offering,' he said. The higher closing AUM was due to a positive market and foreign exchange impact of £9.7bn (2024: negative £6.1bn), which outweighed net outflows. The institutional net outflows were mainly from fixed income and multi-asset strategies, while advisor net outflows were mainly from equity strategies, followed by multi-asset. The institutional channel saw notable positive inflows in the second half. The UK client group's net outflows were driven by some large clients rebalancing their portfolios with reduced allocations to certain equity strategies. Within the Americas clients, outflows were largely due to client restructurings, but there was a return to net inflows from Latin American institutional clients compared with the prior year. For the Africa client group, the second half saw some sizeable client wins into global equities, while the Europe client group's positive second half was driven by fixed income and European and Asian equity strategies. In terms of investment performance, Ninety One's short and medium-term performance had improved, with one- and three-year outperformance closing at 68% and 59% respectively, compared with 46% and 43% at March 31, 2024, respectively. The five and ten-year outperformance closed at 72% and 81% respectively, compared with 64% and 76% at the same time last year, respectively. The firm-wide outperformance was calculated as the sum of the total market values for individual portfolios that have gross positive active returns, expressed as a percentage of total AUM. The UK client group AUM fell by 13% to £21.13bn, while that for the Asia Pacific clients increased by 14% to £23.62bn. AUM from African clients was up 9% to £55.68bn, while AUM from clients in Europe increased 3% to £14.96bn.
