Sanlam Ltd. sounded the alarm about the impact of a protracted war in the Middle East, with Africa’s biggest insurer saying the conflict could have a “massive” impact on its performance.
The escalating tensions will hurt earnings of the firm with operations in 27 nations “very directly” as investor flight hits global equity markets and as rising fuel prices trigger inflationary pressure, which will result in higher borrowing costs, Sanlam Chief Executive Officer Paul Hanratty said.
“You impact consumers everywhere with higher prices and higher interest rates, which is going to reduce new business coming in,” he said.
Besides jolting energy and financial markets, the conflict that began on Feb. 28 has caused thousands of flight cancellations and disrupted the flow of goods. The International Energy Agency said the war in the Middle East is creating the largest supply disruption in the history of the global oil market.
Most global equity gauges have dropped in the period, with South Africa’s benchmark falling 12% in dollar terms, making it the fifth-worst performer among measures tracked by Bloomberg.
The decline will reduce assets under management, which Sanlam earns fees on, “so it’ll hurt the earnings very directly,” Hanratty said.
The rising uncertainty is raising bond-yield sensitivity, potentially triggering greater risk aversion among investors, driving them to prioritize holding capital over investing, which would also hurt Sanlam’s profit.
It may also threaten deals such as the purchase by Japan’s largest lender, Mitsubishi UFJ Financial Group Inc., of a minority stake in Indian shadow lender Shriram Finance Ltd. for about $4.3 billion. Sanlam has partnered with Shriram since 2005.
MUFG said the investment would help establish a business foundation in India’s retail and small-business markets and capture the growing domestic demand.
Shriram, India’s second-biggest non-bank lender, operates businesses across urban and rural areas, focusing on loans for commercial vehicles, tractors and passenger cars. Sanlam sees the market as a key driver of growth.
“The transaction is not complete yet so this is exactly the sort of situation where a war in the Middle East is unhelpful,” Hanratty said. It “may cause a risk that somebody decides not to deploy 4 billion of capital in a world that’s suddenly very uncertain and that is why we would be worried,” he added.
Photograph: A Sanlam Ltd. office building in the Sandton district of Johannesburg, South Africa, on Tuesday, Aug. 15, 2023. Photo credit: Michele Spatari/Bloomberg
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