On the Ground in Westville, KZN
F&A Monthly Update | June 2021
Wow! Quite an incredible run of days has been experienced here in KZN. With lots to cover, we have broken our monthly piece into the following sections:
My notes from on the ground here in Westville
Brandon’s feedback around current events, the factors surrounding it, and portfolio positioning.
Our fresh monthly commentary with all the data you need
From what seemed like small and scattered opportunistic looting, to truly tragic events over the days that followed… I know you have read and viewed this news extensively, and so I will share what I am seeing.
The first response from most in the community was a deep sense of fear and uncertainty. For many this is crippling. Many are still there. Please check in on your friends and family! Once the braver amongst us started to coordinate and come up with a plan, the community at large joined, gleaning strength and bravery from others - each of us innately aware that we are stronger, together!
What was to unfold is the most inspiring of events, and in my view, the best solution we collectively have to offer – all of us, together, working towards a common goal. A truly united force for good!
A community giving more than it takes
Consider this: knowing our lives and livelihoods are at risk, Westville has successfully organised a community-led security structure (many areas around SA use this system too). This structure works alongside the overwhelmed police service, relieving stress and assisting, while still submitting to their guidance and authority. The various neighbourhoods (zones), led by volunteers, defined key entry points and resources (shops and more), agreed which zones would protect which resources, and developed schedules for community members to protect those areas. These rosters are filled with everyday good civilians like you and me, of every creed and race, ranging from kind-hearted ladies feeding those patrolling… to mostly our eyes and ears… to the armed, supported by the well-armed, and finally SAPS. The result: a unified and aligned community, with many moving parts, but minds and hearts all pointing in one direction. A community giving more than it takes.
I personally took 3 patrolling shifts on Tuesday 13/07, on one of the key entry points (M13 offramp going west next to Westville Mall and our offices). I helped reduce and then stop traffic flow into Westville as we gradually closed the suburb. Of the 200 cars, 195 were coming to look for supplies – food and fuel. The other 5 were possibly suspicious and got redirected away from Westville with the intel being immediately shared. I can’t say for sure if they were a true risk, but you have to draw the line somewhere. We were amazed by how desperate people were. But more than that, it struck me that those 195 had no intention of hurting. They are likely good people trying to look after their families! We had to turn around parents looking for baby food and formula for their infants, and it shook me as I watched the hope drain from their face. This shouldn’t happen to babies! And so it got me thinking. With all the shop owners scared of being looted and/or burned, who would help?
EVERYDAY HEROES
So I called my mate Ross Henry between shifts. His family has run the Pick ‘n Pay in Westville for decades. They were ahead of me and shared they wanted to open their stores in the morning, but were unsure of how to conduct it. They didn’t have a full staff complement and needed help. Again, Ross, his dad Hilton, and several of us coordinated this, bringing a wider group of friends in to help the store get going. The community needs to eat. More than that - it needs to see others being brave so that they can, in turn be brave too.
A limited staff complement and a group of volunteers opened the store on Wednesday morning 14/07 amongst complete uncertainty - ready to close at any moment, and unsure of what the day might bring. The PnP team and volunteers worked tirelessly from just after 6am through to 5pm. The day as a whole was nothing short of a miraculous experience in unity and human goodness. No one really knew what to do. No one had ever been in this situation, so we were trouble shooting and developing systems as we went. There was friction, but there was higher purpose still. One of the policies was that the whole community must have the opportunity to eat, and so shopping was limited to 15 items per household. No toilet-paper-gate here! The community lined up outside the store, on the roads, and waited as patiently as they could, being ushered in in groups of 15. So it happened, not without hitch, but by maintaining clear communication with the queuing public, we fostered understanding - they saw we were being brave and trying, and so they worked with us. Again, unity! I estimate we fed 600 Westville families, and with prioritised care for babies at the end of the day, we must have looked after over 100 little ones. Several people wept when they left the store, thanking us for making the effort. Community. Unity. A shared goal. Adding value to others.
As I write this, the plan is for PnP to reopen again tomorrow (Thursday 15/07), with new learnings, and in the hope that the situation in Westville remains stable. Pensioners will be prioritised; the public that was turned away at the end of the day were ticketed, and they will have priority after the pensioners; and then the shop will open, again under careful conditions, to the general public. (Update: this was done and is running smoothly. Further to this we have also aligned the Pick ‘n Pay with both the Spar and Checkers management, as well as key security leadership to make sure Westville is fed.)
To watch a group of about 30 individuals, half of whom have never been involved in a retail shop, work together to run the store was heart-warming. But it's better than that - we were directly and indirectly supported by our community security structure of well over 100 patrollers on shifts at various locations throughout Westville. They were carefully positioned and in contact with SAPS to make sure we got this over the line. And we did! Tonight, Westville eats!
Those that can, must do, and we must do it together!
I know I paint a stark picture, one that may not seem as full of hope as I suggest. But don’t be so angry or scared as to miss it: At the exact moment when we could have been be our most afraid, most depressed and holed up, we weren’t. We, Westville, were out there doing what needed to be done. It is not enough to talk. Those that can, must do, and we must do it together!
So I come to my conclusion, and in my view, our solution. We are all nervous, all worried for our safety, and then our future. Please don’t be so pessimistic as to think all hope is lost. I witnessed that it is not! We all think hope is this big brave voice that shouts at an advancing enemy, and yes it can be, but hope is also the quiet whisper that says to you, as you lay your head on your pillow, I can do this, I am going to try again tomorrow. The solution to all our challenges is to add more than we take, and to do it together. Tell me how you stop that.
I implore you to work out how you can help both now and in the future.
The good thing is that you already know where / how to help. By adding more value than you take, in the areas you know you are personally strong. Be kind, and generous with your energy. Work together with others. And the 99% of South Africans that are good, will overwhelm the 1% that is bad with such commitment and unity, that we will be impossible to stop!
Please see Brandon’s piece below which further unpacks the events at a higher view, along with our joint strategic positions regarding our portfolio management.
KZN and Gauteng Unrest
Brandon is the CEO and Chief Investment Officer at PortfolioMetrix, our dedicated investment partner of choice.
I write this in sympathy with my fellow South Africans as we try to comprehend the scale and the intensity of the violence and looting that has gripped large parts of KZN and Gauteng. Just as evidence is starting to emerge that the 3rd wave of Covid infections may have peaked, and that our vaccine roll-out program is gaining momentum, the pandemic has moved off the front page of newspapers.
The arrest of former president Jacob Zuma for contempt of court was certainly the catalyst and proximal cause for the initial violence that ignited in KZN and spread. While much of the subsequent unrest appears spontaneous, there is emerging evidence of strategic infrastructure being targeted, suggesting some level of coordination. Investigations have been instigated into the behaviour of individuals aligned to the former president.
Whilst the brazen criminality is sickening, it is impossible to dissociate the febrile state of the nation with the desperate plight of many of our citizenry. Covid has placed an intolerable burden on many, where social conditions prior to the pandemic were stretched to the limit. Nevertheless, no-one’s interests are served by this, and criminality cannot be tolerated.
It is clear that the immediate victims of this destruction will be the poorest and the most desperate. Many woke up today with no infrastructure in place to obtain food and essential medication. Supply lines take time to re-establish, and it will take much reconstruction before destroyed commercial infrastructure can be replaced. A pre-requite to reconstruction is the restoration of stability and law and order.
At times like this, the proximity of events in time and space may feel overwhelming. It is often only possible to get a real perspective after things have subsided. But the analysis of crisis over decades, whether global or local in nature, suggests that calm and objectivity always trump emotion and knee-jerk reaction. It is often difficult when news flow is incomplete to really judge scale and impact.
What we know thus far is that the SA equity market has remained relatively stable and is still at approximately twice the level of the low point at the onset of the pandemic. This suggests that markets do not yet see this as systemic – even the stocks of retailers that have borne the brunt of much of the destruction have fallen by far less than one might have imagined. The rand, which as expected has weakened, is at levels that we were accustomed to only a few months ago. Today, foreign investors are piling into our bonds. Markets are information processors, and the relatively muted response so far is a positive indicator.
Many have, with good reason, criticised the response of the security cluster. Regardless of the flaws, it is clear that everyone’s interests are at stake, whether they be the government, business or private citizens. This means that the mobilisation of resources will happen quickly, as well as pragmatic measures to prevent ongoing contagion. The hope is that we can move as quickly as possible to rebuild what is broken – not just shops and buildings and infrastructure, but also addressing the deep problems of inequality, poverty and unemployment that beset our society.
If anything, this is the wake-up call that social and economic issues we face are everyone’s problem. This is the clarion call to up the urgency and I think we will see a change in pace and pressure.
From a portfolio perspective, we went into the pandemic well-diversified and remain so, which has served us well. It is also clear that investors who dumped risk assets last year during the initial phases of the pandemic fared very poorly. Last year, we made significant changes to our non-reg 28 portfolios, upweighting our global exposures to diversify against SA idiosyncratic risks. At the time, we made it clear that this was not a bet against prospects in South Africa, but a common-sense move driven by portfolio construction considerations. We will process information as it becomes available but remain persuaded that a level-headed approach to strategic diversification is a superior long-term strategy to tactical juggling.
This is a trying time as many families grieve. I guess it is also a great time to reveal our humanity and our compassion. Tragedy plays out in unexpected ways and adversity is often a great unifier – we must work to make sure it is, not only in our actions but in our utterances. Words have weight for good and ill and we should use them wisely.
The team here at PMX is positive and doing well. Many people feel quite isolated with lock-down and just need someone outside their bubble to chat to. Please pick up the phone – we are all here for you.
Stay safe, stay positive and get ready to roll up your sleeves. We have some nation building to do.
This month's piece is compiled by Brendan de Jongh, SA Head of Research - PortfolioMetrix.
Local Update
Emerging markets in general had a difficult month which included South Africa given its high EM beta characteristics. After being one of the best performing emerging currencies this year, the rand weakened strongly boosting offshore asset class returns in ZAR terms. Local equities blew off some steam after several positive months and was the worst performing asset class for South African investors. Somewhat surprisingly, local property continued to produce good returns, however global equity and global property eclipsed all SA asset classes as their positive returns in hard currency were boosted by the weaker rand. After significant outperformance, the resources sector fell over 6% despite the weakening rand.
Global Update
June delivered generally positive economic news globally as well as good news on the whole in terms of COVID cases and vaccine rollouts. A notable exception was, however, a large uptick in cases in the UK due to the delta variant which delayed the final step of economic reopening. In the US, there were hints of sooner-than-expected interest rate rises which helped to settle longer-term inflation concerns and contributed to a pick-up in the performance of ‘Growth’ stocks, especially the larger ones, relative to ‘Value’ companies – partially reversing the trend evident earlier this year. Oil prices continued to rise, increasing 10% in June – they are now up over 50% year to date.