Betting against Zuma’s government paid off for Sygnia

Financial services group Sygnia says that its negative political outlook for South Africa this year has been vindicated, with its full year results showing strong growth after following an investment strategy that did not expect things to get better for the South African economy in 2017.

Sygnia on Friday reported revenue growth of 20.6% to R333.1 million for the full year to 30 September 2017, up from R276.2 million the year prior. Assets under management increased from R158 billion to R184 billion, with profits after tax climbing 28% from R72.3 million to R92.5 million year on year.

The strong results came from an investment strategy that took a negative stance against South Africa’s political environment after a turbulent 2016, the group said. Sygnia followed an investment philosophy of diversification, with strategic exposure to hedge funds.

“After a challenging 2016, our negative view of the political situation impacting economic growth and investment risk was vindicated, with investment performance recovering strongly despite the volatility (in South Africa),” it said.

It was South Africa’s match to lose

The asset management firm has grabbed headlines in 2017 by being one of the few businesses in South Africa to take a firm stance against the current leaders in government, openly calling out corruption and exploitation where it sees it.

Group CEO, Magda Wierzyka has been especially vocal in her stance against president Jacob Zuma, who she has called on several times to vacate his office amid state capture allegations.

“This stance has been taken as we believe that unless corporate South Africa stands up and fights for the restoration of law and order in South Africa we are heading down an economic abyss, with all South Africans becoming progressively poorer,” the group said.

According to Sygnia, South Africa’s economy should have been in a prime position to show strong growth in 2017, as the global market was staging a recovery. However, politics got in the way, with the decisions by government and the scandals that enveloped officials taking a huge toll on the country’s growth prospects.

“From an investment perspective, the twelve months to 30 September 2017 were dominated by prospects of tightening monetary policies implemented by central banks after the global financial crisis, a recovery in commodity prices on the back of continuing demand from China and lower supply, geopolitical risks brought to the table by the election of Donald Trump as the 45th President of the United States, and record inflows into emerging markets driven by the ‘search for yield’ argument and a more ‘risk-on’ sentiment among global investors,” Sygnia said.

“Unfortunately, despite the global recovery, South Africa continued to struggle with weak economic fundamentals as political risks intensified,” it said.

The group pointed to missteps by the government as exacerbating one of the slowest growth periods in South Africa’s history – particularly the firing of former finance minister Pravin Gordhan and the blowout scandals around state capture, that roped in the likes of KPMG, HSBC, Bell Pottinger, McKinsey and SAP.

The cherry on the top, so to speak, was the end of year mid-term budget speech, which “highlighted the dire state of South Africa’s finances, with no solutions in sight.”

“We are living through unprecedented times in South Africa when, once again, economics and politics have converged. The political uncertainty has taken a massive toll on the South African economy with low growth, record unemployment, credit rating downgrades of our debt and volatile market returns,” the group said.

Given the level of economic mismanagement, the GDP growth forecasts have been cut to 0.7% in FY16/17, 0.9% in FY17/18 and 1.1% in FY18/19.

Outlook for 2018

Sygnia said that South Africa faces even more volatility in 2018 – but a lot is riding on the outcome of the ANC’s elective conference in December.

“The conference will determine the future course for South Africa. If the ANC elects a president who can focus on restoring law and order, we can recover quickly. If not, then the period until the 2019 elections will continue to be marred by a flat-lining economy, increasing unemployment levels and a difficult investment environment,” it said.

The group said it would continue with its diversification strategy with tactical asset allocation and a focus on low-cost passive investments, and on capital preservation through exposure to funds of hedge funds

“We believe that the world is being shaped by technology at an exponential pace, and hence our focus on investing in trends, which are supportive of technology-driven change. Our focus on these trends has supported our investment performance and will do so in future.”

Read: Zuma’s junk-avoiding plans are going to hurt South Africa

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Betting against Zuma’s government paid off for Sygnia