I recently attended Coronation Fund Manager’s economic overview and I have included a few highlights below.
Globally all key metrics indicate that developed markets are in recovery mode. Unemployment in the United States has declined and forecast to be 6% for 2014. The US budget deficit has steadily been declining and GDP is up. Europe is also in the recovery mode with only France lagging, and Germany continuing to grow strongly.
Japan’s economy is expanding with first quarter GDP at 5.9% and time will tell if their 20 year recession is over for good. Australia remains under pressure as the Australian dollar remains strong. Australia is the most exposed to growth in China, as it responded quickly to the expansion of the Chinese economy. As a result the dollar and labour prices have increased and the last of the manufacturing companies have left Australia.
Emerging markets have not had the same recovery and equities have consistently underperformed. Even though there are concerns with these markets, the long-term demographic trends are still intact, and value and opportunities are still to be had.
And South Africa? The markets have continued to rally despite high domestic share prices, a high budget deficit, high unemployment, low GDP and political unrest. The market is overpriced and will retract.
A big concern is our large budget deficit. We were downgraded last year to a BBB rating, an indication that ratings agencies are concerned about the deficit. A lot of funding is required to fund the deficit and we will need a capable, competent treasury to make sure government curbs spending.
Despite the large deficit, South Africa has world class management teams and as a result we will continue to see foreign capital being invested here as South Africa will continue to be a good investment for foreigners.
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