Wednesday, January 6, 2010
Do not bet against the Rand in 2010
Many indicators point to a positive 2010. The ‘science’ of Economics is (in my opinion) first and foremost a social science, but there are a number of positive comments and reports I would like to refer to.
In the 28 December 2009 edition of the Bangkok Post, Michael Preiss, Senior Investment Adviser at Standard Chartered Private Bank, wrote the following: “Borrowing US dollars to invest in Brazilian real made a 40% net/net return, the best carry trade of 2009, followed by South African rand at 33%”
Considering that the year ahead will see a less volatile Rand, returns like those noted above should not be expected. However, I believe that the outlook for the Rand, and the South African economy, should not be underestimated.
On the 21st of December, the South African Reserve Bank’s released its latest leading indictor – showing a rise at a faster pace in October than in September. The leading indictor combines a range of measures, including, among others, manufacturing hours worked, building plans approved and vehicles sold. Michael Belby of the Business Day writes: ”After a patchy start to the year, the trend has been solidly upwards”. Commenting on SARB’s leading indictor, Elna Moolman, group economist at Barnard Jacobs Mellet said “At the beginning of the year, when it started to improve, it was mostly financial market components that boosted it, but by now it is quite broad based. That is very encouraging”.
South Africa’s inflation rate is expected to ease in 2010. According to the University of Stellenbosch's Bureau for Economic Research, CPI will moderate to 5.7 percent in 2010, down from 7.2 percent in 2009. In the 4th quarter of 2009, there was in increase in Rand Merchant Bank’s Bureau of Economic Research business confidence index. JP van der Merwe of TradeInvestSA highlights that this is the first increase since the 3rd quarter of 2009.
The IMF’s World Economic Outlook was released in October. The IMF predicts growth of 1.7% for the SA economy in 2010. This is a modest forecast, and while it may seem like a gloomy prediction by the IMF, JP van der Merwe notes the IMF’s praise of South Africa for its fiscal policy, future growth prospects and the resilience of South Africa’s banking sector.
The 2010 ‘africapractice survey’ was released on the 15th of December. It is a survey of business leaders across Africa. All respondents expected foreign direct investment to rise in 2010. 95% of business leaders expected to grow their businesses in the year ahead. And while many respondents were optimistic about the FIFA World Cup, most felt that the benefits would be limited to South Africa.
I support Jacob Zuma’s words:
"The year 2010 must be the year in which for the first time, we all communicate positive messages about our country to the world – the successes and possibilities. We have to put the culture of negativity behind us."
South Africa’s economy will face a challenging 2010.
Despite, and in spite of, these challenges, all bets are on