It is not a recovery, but there are sure signs of life

HE latest BankservAfrica Economic Transaction Index has shown a noticeable rise in South Africa’s economic growth over the past two months.

The index measures millions of transactions below R5-million between banks, excluding salaries and card transactions.

“The economy has evaded a second recession, remained standing through the storms of slow growth and negotiated some of the hardest-hitting strikes in decades,” said economist Mike Schüssler, who compiled the index.

“We may not be at the beginning of a full-blown recovery yet, but at the very least we are seeing an end to the declining growth cycle. Signs of life in the economy have become stronger than they have been in months.”

Paul Hansen, emergingmarket fund manager at Stanlib, said the robust performance of global markets of late suggested that the world’s major economies — the US, China and Japan — may be beginning to recover thanks to the US Federal Reserve’s cash-injecting programme of quantitative easing.

Dawie Roodt, chief economist at Efficient Group, said he expected US economic growth to pick up speed over the next two years.

“I’m not so bullish on Europe because it’s in recession. It will remain extremely weak. Locally, I expect 2.5% [annual] growth in South Africa, which is simply not good enough. If we see another strike or another crisis, then all bets are off.”

According to Stanlib data, the MSCI global equities index of countries in developed, emerging and frontier markets has risen by 24% in dollar terms since July 2011. However, the index remains below where it was in March 2000.

Despite this, Stanlib’s Hansen expects the index “to keep surprising on the upside” as developed markets recover.

“Companies in the developed markets can borrow much more [cheaply]. This has lowered interest costs and thus improved their earnings.”

Access to cheap debt would be a key driver of these companies’ share prices in the coming six to 18 months, said Hansen.

Ursula Maritz, chief investment officer at Southern Charter, said there appeared to be a new sense of confidence in the markets, thanks to the efforts of the US Fed, the European Central Bank and the Bank of Japan. “There seems to be more coordination between policymakers and it seems to be working.”

Quantitative easing helped equities in several ways, said Maritz. “Firstly, low interest rates lower the discount rate used to value shares, thus making them more valuable. And secondly, companies can access low-cost credit for expansion or share buy-backs.

“With earnings having grown while the share prices have lagged, there is a real strong underpinning for the quality of the valuation of equity markets, especially in the developing markets,” said Maritz.