South Africa is in the final minutes of the game, warns Sygnia

Despite 2020 being a challenging and economically turbulent environment, money manager Sygnia said on Tuesday (8 December) that it increased assets under management and administration by 5.6% to R251.8 billion for the financial period ended September 2020.

During the same period, it noted that the FTSE/JSE All Share Index returned 2%, the JSE All Bond Composite Index 3.6% and the MSCI World Index, in rands, 21.6%.

“The growth has also taken place in an environment where the institutional savings market is shrinking by virtue of almost negligible economic growth, corporate closures and mass retrenchments in South Africa,” it said.

The company, led by Magda Wierzycka, pointed to a mixture of low-cost strategies and a strong focus on macroeconomic trends, for its active asset allocation decisions.

“Our top performance has been a strong factor behind our growing presence in the retail market. In addition, the Group has launched new products and services in line with its interpretation of customers’ demands and regulatory trends, contributing to the growth in its revenue.”

In terms of financial performance, total revenues, at R661 million, climbed by 30.1% (2019: R508.1 million), while total expenses, at R381.9 million, increased by 12.5% (2019: R339.4 million).

The increase in expenses was primarily driven by higher staff costs associated with increased business activity, an increase in trading, custody and administration costs and marketing expenditure.

Financial highlights:

• Diluted headline earnings per share climbed by 64.6%  year-on-year from 87.3 cents to 143.7 cents per share;

• Headline earnings per share is up 66.6% from 87.9 cents to 146.4 cents per share;

• The total dividend per share swelled by 83.33% from 60.0 cents to 110.0 cents per share;

• Revenue increased by 30.1% from R508.1 million to R661 million; and

• Profit after tax rose by 63.7% from R125.9 million to R206.1 million.

South Africa outlook

Sygnia noted that South Africa lost its final investment grade rating on the same day that the country entered lockdown, when Fitch downgraded the country to junk status, causing its exclusion from the influential World Government Bond Index and leading foreigners to sell down their holdings in South African bonds.

“Where foreigners once held close to 43% of our government debt, today that stands below 30%, despite South Africa providing some of the highest real yields in the world.”

The group said that global investors have increasing concerns about South Africa becoming a “failed state”, where debt levels reach unsustainable levels and the government runs out of options to repay interest due on loans.

“Unless the South African government can convince global investors that they have a plan to manage their way out of this situation and to generate growth, the downward spiral will snowball and lead to social unrest. Global investors will demand higher rates of return to loan money to South Africa, and South Africa will in turn have to borrow ever-increasing amounts to repay interest on the debt due.”

It said that spending needs for social programmes will also increase due to rising unemployment, stressed schooling and health systems and electricity generation.

“We do not believe South Africa is at the point of becoming a failed state just yet, but we are in the final minutes of the game, and there is now no room for error or equivocation.

“Without growth, South Africa will remain mired in a debt crisis, with the inevitable result being a trip to the International Monetary Fund and the unpalatable austerity measures they will attach to any loans given.”

A strong social compact is in the making between labour, business and government, which could pave the way to success.

Sygnia said that if South Africa is to avoid a debt trap, it must throw off the shackles of corruption.

“In short, while we recognise that the South African economy is on a precipice, it can still step back by cutting spending, investing for growth and creating the jobs that will help the nation fulfil the potential we know it possesses.

“A number of positive catalysts have raised the prospects for global growth in 2021, including the Biden presidency, the 14th Chinese 5 year plan, a weaker dollar and the successful phase 3 trials of a number of vaccines. As a small open commodity producing economy, South Africa is geared to global growth, particularly in China, and these improved prospects offer a glimmer of hope for 2021.”

Read: Large asset managers are blocking South Africans from investing overseas: Sygnia chief executive