by Leigh Cunningham-Scott and Dave Sinclair, Debt Capital Market Transactors, Rand Merchant Bank
The global macroeconomic backdrop is currently characterised by uncertainty and volatility with limited potential of stabilising in the near term. The key theme that all economists can agree on is that this uncertainty and volatility is here to stay. However, uncertainty creates opportunity, particularly for South African corporates with existing bond structures or those looking to expand offshore.
Financial markets tend to overreact ahead of an event only to revert to normalised levels post the event. Surprises such as Brexit, create market uncertainty and subsequent volatility. While the initial market moves subsequent to Brexit have reverted, overall global growth and deflation fears have increased. Fundamentally this should result in a risk-off scenario where investors move out of emerging markets to invest in safe haven assets. Instead, the anticipated slowdown in developed countries such as the UK has driven renewed interest in emerging markets offering a yield pick-up.
Brexit, in the short term, is unlikely to have further significant effects barring what has already been discounted by the market. Over the longer term, the impact is likely to centre around trade, investment, tourism and aid flows. Domestically, some stabilisation has already been evident with the rand and JSE trading around pre-Brexit levels. Concern is rather focused on long-term financial flows and financial market volatility as investors carefully consider the growth prospects of emerging markets.