Is an IMF bailout really imminent? (#365)

Simon Shares

• Shoprite* (JSE code: SHP) results a show of many parts. Locally second half much better after the disaster of the first half. Rest of Africa swings into a R265million loss after making R1.6billion in 2016 FY.
• Dischem (JSE code: DCP) below 2000c. Was always way over valued but still on a PE of over 20x so not yet cheap.
• AdvTech* (JSE code: ADH) decent trading update. Lots of moving parts, but stripping that all out leaves HEPS +5% - +9% up and on a PE of under 15x much cheaper than Curro (JSE code: COH) and Curro no longer has the tertiary segment which is doing better than schools right now.

• Trump has delayed the new China tariffs because this could hurt the US consumer in the yearend shopping season. But in the same breath he says China is paying the tariffs? The man is a nut job.
• Local CPI came in at 4%, below previous of 4.5% and expected at 4.3%. Simply there is no inflation in the system right now and another rate cut from the MPC is surely assured as we move even lower below the 4.5% mid point of the range?
• Top40 is still green for the year. Off the +11% from earlier, but it's still +5.1% excluding dividends. But it fells like we're down 100%. That all said, over the last year Top40 is 8.8% excluding dividends.
• ETFs for investing and retirement.
• Dividend ETFs.

* I hold ungeared positions.

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Is an IMF bailout really imminent?

"The IMF's primary mission is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries and their citizens to transact with each other." (source)

Upon the founding of the IMF, its three primary functions were: to oversee the fixed exchange rate arrangements between countries, thus helping national governments manage their exchange rates and allowing these governments to prioritize economic growth, and to provide short-term capital to aid the balance of payments. (source)

Lots of hype (hysteria?) about an IMF bailout for South Africa with all sorts of talking heads weighting in suggesting it is a certainty.

But an IMF bailout is not happening any time soon, the facts are simple and we're a long way off even entering talks about a bailout.

Now sure our economy and stock market are both under pressure but the IMF cares nothing about the latter and the former is struggling but it is a long way from a death spiral.

• Our government debt is +/-90% in Rands, so currency weakness does not kill our debt burden, whereas foreign currency debt kills when the currency weakens. Tis is a big reason for most bailouts and it is simple not a risk for us.
• Our Balance of Payments (BoP) is fine at some 4-5 months. Now sure more would be better, but that is not anywhere near a crisis. When Pakistan got their recent bailout BoP was down to a few days.
• Our currency is fairly stable, certainly it is not crashing

Bottom line, we're not seeing capital flight so no IMF bailout waiting in the wings.

So why are we seeing all sorts of hysteria headlines saying an IMF bailout is practically a certainty when it patently is not?

Also, why the fear from market friendly economists and the like? All these economists who criticise government for not being market friendly enough would surely love the IMF market friendly conditions for a bailout? Or are they practising double speak?

Both the in country IMF head (Montfort Mlachila) and our own SARB governor (Lesetja Kganyago) state that it is not currently on the table.

Now sure, 'currently not on the table' can change. But which of the above will trigger the change? What else could trigger the change?
Short answer is Eskom, but there are plenty of balance sheet / debt options for Eskom and minister Mboweni says we'll have details soon.

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