By Staff Reporter
Investec Asset Management Director Jeremy Gardiner has expressed hope that the South African ruling party, the African National Congress (ANC), and the government there find common ground on how to work together, “rather than the persistent conflict which we are seeing at the moment”.
“It appears, at this stage, that the post-Polokwane leadership of the ANC understands the importance of maintaining current economic policies and foreign investor confidence,” said Gardiner.
“It is, however, early days yet and both words and actions will have to be closely monitored.”
He said the “flat” South African Rand of last year should continue its hopefully gradual decline going forward.
“The [newly-elected president of the ANC Jacob] Zuma camp is likely to favour a weaker Rand in order to stimulate manufacturing growth and employment.”
Gardiner said this would have implications for inflation, rendering bonds unattractive and reigniting interest in offshore investments.
The good news, he said, is that western economies look set for a worse year “yet again”.
“While our consumer party is over, corporate spending is finally starting to accelerate, and the government’s [the South African Government’s] massive infrastructure programme over the next three to five years will drive growth, earnings and jobs, so we should therefore avoid the slump that the developed world is staring in the face right now,” Gardiner said.
He said the slump in the subprime housing market in the USA will significantly impact consumer spending there, and growth will slow substantially “and the chances of a US recession are significant”.
The outlook is that the world growth will moderate as a result, and that the US dollar will remain under pres- sure.
“Geopolitically, Iraq remains a mess, Iran defiant and Pakistan is armed, nuclear, dangerous and ungoverned.”
Investec said oil prices would remain higher rather than lower.
The US rates, the asset management company stated, would drop in an attempt to resuscitate the economy, which will further weaken the US dollar.
In his outlook, Gardiner said liquidity injections in the form of rate cuts in the developed world might re-energise markets, and the weaker US dollar would further boost American exports.
Asia, on the other hand, he said, remains strong.
Investment analyst for Namibia Asset Management, Carmen Foster, said while South African shares offer good value, the markets may remain under pressure in the near term.
“Until the market has more clarity on whether the US economy can avoid an outright recession and there is evidence that the SARB [South Africa Reserve Bank] has not overdone the raising of interest rates to bring inflation under control, the equity markets are unlikely to move substantially higher,” predicted Foster.
She said the Rand exchange rate could face some more “headwinds” that would “retain a full allocation to offshore assets”.
“Whilst we see attractive valuations in the South African market, we similarly see very compelling valuations amongst especially blue-chip, large cap global shares,” she said.
“Combining this valuation argument with that of a potentially weakening currency over the next few years makes us believe that global equities will offer the best possible returns, followed by local equities with bonds and cash delivering slightly lower returns,” Foster said.