Three bold predictions from Michael Jordaan

Michael Jordaan has made a series of bold predictions about South Africa’s economic performance, emerging market growth, and where investors may get the best returns. He said these predictions are for the decade starting in 2025. 

Jordaan is well-known as one of the best chief executives in South Africa and for transforming FNB into the most innovative financial services provider in South Africa. 

Appointed CEO at only 36, Jordaan led FNB through the 2008/09 financial crisis and was the brain behind the eBucks rewards programme. 

With more than 20 years of experience in the financial services sector and nearly a decade at the helm of the Bank, he oversaw the move away from traditional banking and led FNB to become the “World’s Most Innovative Bank.” 

He was the 2013 Sunday Times Business Leader Award winner and, in 2014, was awarded CNBC The All Africa Business Leader of the Year Award.

Prior to becoming FNB CEO, Jordaan completed a Master of Commerce specialising in economics and obtained a PhD in banking supervision at Stellenbosch University. 

He held numerous senior banking positions in his twenties and early thirties before taking over at FNB. 

Jordaan left FNB in 2013 to become an entrepreneur and venture capitalist through his company, Montegray Capital. He is behind many successful ventures, including mobile operator Rain and Bank Zero.

Below are Jordaan’s three predictions for the decade starting in 2025, based on his social media posts and his response to questions from Daily Investor. 

The South African economy will grow above 2.5% per annum on average

Jordaan expects the South African economy to grow above 2.5% annually, based on renowned macroeconomic analyst and investor Ray Dalio’s GDP growth forecast for the next ten years. 

Dalio is known for creating the world’s largest hedge fund, Bridgewater Associates, and his in-depth analysis of macroeconomic trends. 

To create his forecasts for economic growth, Dalio combines metrics tracking labour market forces, economic stability, and social factors. 

Looking ahead, many advanced economies are expected to experience slower growth as they grapple with their highest debt levels since World War II. 

Meanwhile, emerging markets are forecasted to achieve the strongest growth, fueled by rising productivity.

South Africa breaks into Dalio’s top ten fastest-growing major economies, ranking ninth with a forecasted average annual growth of 2.9% per annum. 

Emerging markets will significantly outperform developed markets

Dalio’s analysis, in particular, the idea that developed economies will struggle to sustain high growth rates as high debt levels burden them, informed Jordaan’s prediction that emerging markets will outperform developed markets.

Slower growth rates will naturally translate into relatively poorer stock market performance. 

Jordaan also pointed out that the US stocks, the main driver of developed market outperformance in the past 15 years, are significantly overvalued. 

For example, the Nasdaq’s price-to-earnings ratio is 33 times. The Buffett indicator, a metric tracking the total market cap of the US stock market versus US GDP, now sits at over 200% – a record high. 

Jordaan also sees some mean reversion to emerging market equities, which have been beaten down in recent years. Their performance will also be boosted by faster economic growth. 

Simply put, the combination of slower economic growth in developed markets and an extremely high base will see emerging-market assets outperform. 

Venture capital and private equity as an asset class will outperform listed equities

Jordaan explained that traditional stock market indices are a better reflection of the current economic structure than the future state. 

However, the status quo in economies is likely to change dramatically as new technologies like AI, 3D printing, cheaper solar/ batteries, unlimited 5G data, and free banking become mainstream. 

Venture capitalists and private equity firms are more likely to have placed bets on fast-growing upstarts, and these will outperform the majority of old economy businesses. 

The local venture capital industry is still minuscule, with assets under management of R9 billion versus private equity of R213 billion and the JSE of R20 trillion. 

Put differently, local venture capitalists and private equity firms together constitute just over 1% of the JSE, which is tiny but also has massive growth potential given the avalanche of new technologies and new business models.

As such, Jordaan predicted that venture capital and private equity as an asset class will outperform listed equities over the next decade.