Dance?

Finweek English Edition - - INVESTMENT -

tion of monthly US govern­ment bonds pur­chases ev­ery quar­ter. Given that it is com­ing off an $85bn monthly pro­gramme, it’s go­ing to take at least two years to run the pro­gramme down. The Ja­panese cen­tral bank continues to print money at a dizzy­ing rate as it at­tempts to lift the econ­omy out of its three decades of slum­ber and the Euro­pean Cen­tral Bank is happy to do “what­ever it takes”, to quote its pres­i­dent Mario Draghi. All of this sug­gests that the band will keep play­ing for the next year at least. EQ­UITY MAR­KET PER­FOR­MANCE In the past year we’ve seen global eq­uity mar­kets dance hard in re­sponse to the mu­sic from the var­i­ous cen­tral banks (see graph – all re­turns in rand). Even the JSE has been up by 20% over the one- year pe­riod to the mid­dle of Fe­bru­ary, out­per­form­ing other emerg­ing mar­kets in the process. WILL THIS CON­TINUE INTO 2014? It is likely that global eq­uity mar­kets will con­tinue to be sup­ported by the an­tic­i­pated con­tin­ued liq­uid­ity in­jec­tions. The US growth re­cov­ery is slow but seems to be en­trenched. Europe still has a long way to go – but it seems to have turned the cor­ner. There are some key threats to Chi­nese growth re­main­ing on track. The property and shadow bank­ing bub­bles are the most se­ri­ous of these – but the cen­tral govern­ment should have enough fire­power to deal with these. WHAT ABOUT SOUTH AFRICA? Our coun­try is a fas­ci­nat­ing mix of good and bad. De­spite be­ing one of the ‘frag­ile five’ with our twin deficits (Govern­ment and trade), up­com­ing gen­eral elec­tions in May and our cur­rency hav­ing weak­ened sig­nif­i­cantly over the last year, the stock mar­ket is cur­rently at an all-time high.

The way to rec­on­cile this is that the lo­cal mar­ket in­dex is dom­i­nated by rand­hedge stocks. The weak­ness of the rand and the global re­cov­ery is very good for these while the lo­cal in­dus­tri­als and fi­nan­cials are sold off.

In sum­mary, it seems that the dancing will con­tinue for a lit­tle longer here as well – but it seems the mu­sic is chang­ing and in­vestors (or their man­agers) must be able to re­spond.

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