Treasurers prepare for harder times as South Africa officially enters recession
- Corporates would rather sit on their cash until the economic and political volatility that abounds settles
- Because the yield curve is very flat at the moment, treasurers are able to take advantage of attractive yields without locking up their funds in longer-term investments and losing out on the liquidity that they are so desperate to retain
A record number of South African treasurer’s from various industries attended the annual Nedgroup Investments Treasurer’s Conference in June, to discuss the key issues affecting local treasurers – specifically how to create opportunities for parking their high levels of surplus cash in such a challenging political and economic environment.
Sean Segar, Head of Cash Solutions at Nedgroup Investments says the high attendance at the annual event shows the levels of concern among local business at the moment. “With the country now officially in recession there is justifiably a definite air of concern for the future. These treasurers are grappling with huge issues at the moment. They want to hear from the economists, political analysts, regulators and ratings agencies and they want to discuss how best to position their companies while they sit this uncertainty out,” he says.
Segar points to the unusually high and growing cash balances held by South African companies. “The cash on balance sheets is at near record levels again and while this is not unique to South Africa, the reasons for local Treasurer’s for hoarding cash seems to be less about waiting for opportunities and more about a reluctance to commit to investment and development. They are preparing for hardship.
“We have daily interactions with corporate treasurers and the message we are getting from them is clear. Business South Africa is consciously holding back on expansion. Everyone is playing the waiting game. Corporates would rather sit on their cash until the economic and political volatility that abounds settles,” he says.
Others just don’t have the confidence to spend it. "Poor political leadership is becoming the main cause of this and our clients are more vocal about this being a reason for lack of investment,” he says.
But it is not all doom and gloom. Segar says discussions at the Nedgroup Investments Treasurer’s conference 2017 were dominated by evaluating strategies to best capitalise on the low-risk yield opportunities that are present at the moment. However, liquidity remains a key concern for treasurers.
“In times like these, local companies need to be mindful of every percent of additional yield that they can access. Because the yield curve is very flat at the moment, treasurers are able to take advantage of attractive yields without locking up their funds in longer-term investments and losing out on the liquidity that they are so desperate to retain,” says Segar.
This is particularly relevant for retirement funds who, as a result of lower inflation rates, can achieve inflation-beating returns from cash while retaining full liquidity and avoiding capital fluctuations.
Segar says they have seen marked uptake of Money Market investments over the years by corporate investors, testament to the evolution of the industry which is now paying out billions of rands annually in extra interest to users, over and above the best call account rates, but still offering the liquidity of a call account.