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There’s strong disagreement about how 2022 will play out in the markets

January 5, 2022, 11:09 AM UTC

Good morning. David Meyer here in Berlin, filling in for Alan.

After a fairly positive start to 2022 for the markets, where do things go from here? There’s pretty strong disagreement on that issue.

In the bull corner, we have JPMorgan telling us to, well, “stay bullish,” with analysts saying in a Tuesday note that “positive catalysts are not exhausted” and risks such as central-bank hawkishness, Chinese deceleration and tighter COVID restrictions either won’t happen, or are already priced in. Credit Suisse and Société Générale are also in this camp.

And on the other side, as Fortune‘s Shawn Tully notes in this piece, we have Barclays predicting a flat year, and Goldman Sachs and Bank of America foreseeing S&P drops of 7.7% and 3.5%, respectively.

“The forces that make Wall Street mildly negative on 2022 aren’t going away, and they’re a lot stronger than the bright-side-seeking sages acknowledge,” Tully warns, referring to five reasons he thinks stocks (particularly big caps) will do poorly—I won’t spoil your read by listing them here, but you won’t be surprised to see they include stretched valuations and a rise in inflation-adjusted “real” rates.

* * *

Separately, South Africans like me have today been devouring the details of the first report to emerge from the Zondo Commission, which spent years looking into “state capture” under the rule of former president (and current on-and-off jailbird) Jacob Zuma. While the report’s biggest impact will be local, some western companies will also find it uncomfortable reading.

PwC is one of them. This first report largely deals with corruption at state airline South African Airways (SAA), which was at the time chaired by the now-disgraced Dudu Myeni, an extremely close Zuma ally. PwC and a local accountancy firm audited SAA each year between 2012 and 2016—when, in the report’s words, SAA’s board was “in a state of precipitous governance decline [and] also engaging in acts of corruption and fraud.” The auditors saw nothing irregular, leading the commission to accuse them of “failing in their duties.”

The other big name is Bain & Company, a former employee of which, Athol Williams, turned whistleblower for the commission. According to the report, Bain “colluded” with Zuma and Tom Moyane, the disastrous former head of the SA Revenue Service, to needlessly restructure the internationally-praised tax authority, with the result that it could no longer effectively stand in the way of state capture and organized crime.

The Commission has recommended charges against both Myeni and Moyane. It expressed its gratitude to Williams—who has fled the country because he fears for his life—for his evidence about the capture of the revenue service. “He rejected numerous attempts from Bain & Co to give him large sums of money in return for his silence,” the report noted. “The Commission highly appreciates his assistance.”

Neither PwC nor Bain & Company had responded to requests for comment at the time of publication [Update: See statement below]. More news below.

David Meyer

Updates: PwC subsequently emailed across a statement, saying it is “disappointed that the work fell below the professional standards expected of us and that we demand of ourselves… We are confident that this incident is not representative of PwC’s high-quality work, which our thousands of dedicated and professional people are rigorously trained to deliver.” The statement also notes that PwC’s audit partner, Nkonki, accepted responsibility for not flagging SAA’s non-compliance in audit reports between 2014 and 2016.

Bain also got in touch to point us to this statement, in which it claims the Zondo report “mischaracterizes Bain’s role at SARS” and the company remains “confident that we did not in any way wilfully or knowingly support state capture at SARS or elsewhere.”


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This edition of CEO Daily was edited by David Meyer.

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