27 DECEMBER, 2011 12:44
JANICE ROBERTS
ARTICLE FROM BUSINESSLIVE
The anticipated recession in Europe next year will affect SA's economy, according to economists and investment strategists, as the eurozone area remains this country's major trading partner.
Santa rally may face test next week
“China is the single most important country from a trade perspective, and India is growing rapidly, but as a region, Europe still dominates SA's international trade flows,” according to Adrian Saville of Cannon Asset Managers.
Economist at Absa Capital Jeffrey Schultz, believed that even a mild recession in Europe would present a risk to local companies with exposure to the export market, as the eurozone bought up almost 30% of SA's manufactured exports and almost 30% of the country's mining exports.
Economist at Standard Chartered in London, Razia Khan said any slowdown in the eurozone would hit SA, adding that she expected to see a recession in Europe in 2012 as economies there tried to solve their sovereign debt problems.
Only last week, International Monetary Fund Managing Director Christine Lagarde called for greater efforts to shield African countries from the crisis affecting developed economies.
Saville said there was a better-than-even chance that Europe would dip back into a recession in 2012.
However, Schultz said SA's export exposure to countries like India and China as well as the rest of Africa could bring some relief. At present, the African continent absorbed a significant portion of SA's manufactured exports while Asia took in almost 60% of SA's mineral exports.
Saville agreed that SA was presented with the opportunity “to straddle the shifting economic plates by striving to gain competitiveness and market share, not only in existing markets but also against new competitors.”
African countries such as Angola, Kenya or Nigeria, or South American states like Brazil, Chile and Peru, or Asian ones such as Indonesia, the Philippines and Vietnam, represented the huge potential of large, diverse economies which were expanding rapidly.
“To put the point differently, the sheer size and growth of these new, dynamic markets is compelling.
“For example, over the past ten years, the collective nominal growth of the BRIC economies was close to US$10 trillion, more than three times their 2001 size of US$3 trillion. Moreover, in the decade ahead, the BRICS will probably create at least another one of their current self, say $12-13 trillion: that's equivalent to 40 times the size of the Greek economy, six times the size of the Italian economy, or another US economy.”
So where do investors stand in these uncertain times?
According to senior investment strategist at Citadel, George Herman, developing markets were still preferred above emerging markets but less so than before.
Herman stressed that there would be many value opportunities in 2012 - especially in Europe.
"There are a lot of good companies in Europe but it takes a lot of courage to buy those - however, we have a long term horizon, and here at the moment is where opportunities arise."
Herman sounded a warning on gold.
"Gold has been a warm and fuzzy meeting place for conspiracy theorists and those who believe in the demise of the dollar, but the fundamentals of gold itself don't justify where the price went in 2011.”
Turning to cash and bonds, he added that cash would outperform bonds in 2012 while inflation-linked bonds would outperform nominal bonds.
"Corporate bonds are still the preferred exposure."
Herman said local markets seemed a touch expensive when compared to international markets.
"We see our growth in 2012 at a disappointing 2.5% - our emerging market peers will double that.
"And we do have a bias towards international investments over domestic ones."
Herman was confident that the eurozone would eventually find a solution to its problems.
"There are 17 countries involved and it might take a long time," he concluded.
Of course there are prophets of doom around. One is Mark Faber, an ex-South African investment specialist who pessimistically said in an interview last week: "I am ultra-bearish. I think most people will be lucky if they still have 50% of their money in five years' time.”
However, most economists and investment strategists have told investors not to panic when yet another volatile and uncertain year begins in 2012.
Investors have been advised to stick to their investment strategies and think “long-term.”
ARTICLE FROM BUSINESSLIVE