It’s helpful to look at what we can expect economically from 2015. It helps give us perspective as to what we can expect from this coming year. I recently heard both Ashburton and Allan Gray’s views on the markets and will share some of them in this post.
Ashburton foresees that developing markets will grow at 5-7% and developed at 2%. They see growth coming from the United States next year, which bodes well for us here in South Africa. They do not see much growth coming from Europe as growth is under pressure in the EU. Allan Gray views R11 to the dollar to be a fair market value.
China has spoken of a slowdown and predicts GDP to be around 7%. As they are a large consumer of conditions, we should see a slowdown in commodities.
And the beautiful South Africa? What can we expect? Our equity market is currently trading at an average PE** of 22.7 and the historic average PE is 17.7. Currently our PE is higher than historically and Allan Gray calculate that if you had to buy shares in the market now, it will take around 4 years before you see a return on your investment.
This past year has seen economists downgrade our growth figures and credit agencies downgrade our ratings. Economic reform and growth is needed and there is a strong push for Government to rectify the situation. We have seen the new Finance Minister, Nhlanhla Nene, come out and say that we can expect a tax hike in February next year. He has also said he will be aiming to reduce wasteful government spending. We might see another increase in interest rates later in 2015 as they have been kept low.
Another ongoing concern is education. South Africa’s spending on education is amongst the highest percentages of GDP, yet our education is amongst the worst worldwide. Our children consistently perform in the bottom percentage of countries tested in Mathematics and English. We have a poor return on investment in education and should maybe seek assistance from other African counties who have succeeded in this area. Education reform is the key to our future and those of our children. It will be interesting to see how the problems in education will be addressed in the next few years.
PE** = price to earnings ratio.
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