Money begins to head north despite south’s growth

IMPROVED sentiment on prospects for the global economy haven’t helped emerging market equities much this year, as they aren’t benefiting from an essentially risk-on environment to the same extent as their peers in developed markets.

Minus setbacks such as the poor handling of the Cyprus bail-out and the still unresolved situation created by the Italian elections, the mood on growth has remained much more positive than in previous years.

As such, you’d expect equity markets across the globe to be on a bit of a high and for the dollar to strengthen as investors look more positively on the world’s biggest economy.

While the dollar has been on a stronger path this year, on the theory that prospects of a stronger US economy translate into a more buoyant currency, on the equity front it’s been a mixed bag.

Stocks in developed markets — which still have low growth prospects — are being looked upon much more favourably than those in the emerging world.

While the JSE all share has reached record highs this year in rand terms, the index is down more than 7% in dollar terms over the first quarter.

It’s the

worst

first-quarter performance in five years, where the index fell close to 11% in dollar terms.

A large reason for the poor performance is down to the rand’s more than 8% depreciation against the greenback, as investors grow more concerned about slowing growth, high unemployment and a growing current account deficit.

In rand terms, the index — whose biggest weighting is in diversified companies such as British American Tobacco and Anglo American, hasn’t fared too well either, gaining a meager 0.4% this year. It’s the weakest performance since 2009, when the global economy was still in recession.

Brazil’s Bovespa index — of the most liquid stocks on the Sao Paulo Stock Exchange — is more than 9% weaker in dollar terms. According to Bloomberg data, it’s the first time the index has ended in negative territory since 2002.

Investors are becoming a whole lot more circumspect in choosing where to place their money and despite better growth prospects in the southern hemisphere, money is heading north.

Across the board, US equity markets have done well this year, with the S&P 500 index more than 10% firmer. The stocks under this umbrella such as Tiffany, the world’s second-largest jewellery retailer, have gained more than 25% this year.

Local fund managers who have been urging South African investors to look offshore for better value propositions must be finding their jobs just that much easier.

It’s clear that the emerging market play is losing some of its shine. But there’s one thing that still ties all equity markets together, and that is the health of the US economy.

If the world’s biggest economy continues to show signs that it’s now on a clear path to recovery, equity markets from both developed and emerging markets will come under pressure. A healthier US brings ever closer the time when the US Federal Reserve will have to consider cutting back on asset purchases.

And nobody wants to be without a chair when that music stops playing.

WHEN Gold Fields unbundled its local assets, there’s one headache that I am sure the company thought it was finally free from — labour problems.

Its only local operation, South Deep, has a fraction of the workers that its unbundled mines (Beatrix and Kloof Driefontein) had.

Operations and, more importantly, relations with Gold Fields employees in its other jurisdictions, such as Ghana and Peru, until yes- terday seemed a lot more manageable in comparison with the hotbed that is SA.

But yesterday, Africa’s thirdbiggest gold miner reported that workers at two of its Ghana mines had gone on an illegal strike, halting production.

The reasons given by workers for the strike are rather similar to industrial action that SA’s mining space has seen over the past year. There’s no escaping the growing tensions between employer and employee, especially in the commodities space, where prices are still under pressure.

Shares in Gold Fields fell as much as 5.5% yesterday, closing at their weakest level since November in 2008.

The gold mining index closed more than 4% lower, while the price of bullion was 0.3% lower in late afternoon trade.

E-mail: derbyr@bdfm.co.za Twitter: @Ronderby