Pity JSE resources, blown to bits by oil

The Norwegian oil fund has had to box clever, dodging the very bullet that gives it life

THIS week, people unlucky enough to be invested in resources would have been forgiven for gnashing their teeth down to the bone. The oil price, manipulated hither and thither by vested interests far removed from the sunny streets of Johannesburg, has sucked the entire JSE resources complex into a pit not of its own making.

Far-thinkers have rotated out of commodities into consumer stocks that benefit from low energy costs. Petrol prices went down by 45c a litre this month, and Rand Merchant Bank predicts we’re likely to see another cut in December.

That is good for some, but it’s nice to know some die-hards still trust South Africa’s miners to turn the corner.

Bull’s Eye reader newstrader, posting on bdlive.co.za, reckons “resources” day will come again when Europe, Japan and China get economic growth rates to accelerate. But it will not be soon — in some cases it could take three years or more.”

Well, that is some comfort, given that fund managers tell us unceasingly to look through short-term static and focus on the big picture. Ja, boet, but it hurts.

At times like these it is illuminating to see what the world’s giant money managers are doing. Norway’s sovereign wealth fund — a pool of excess (oil) profits that is ring-fenced from the day-to-day grind of fiscal policy — is the biggest of its kind. At $860-billion, it is larger than similar oceans of cash governed by Abu Dhabi, Saudi Arabia, China and Kuwait.

The Norwegian fund has had to box clever, dodging the very bullet that gives it life. Norway relies on oil for 22% of its economic output. Its oil companies may cut spending as much as 18% next year to adapt to the tougher environment.

GDP growth in Scandinavia’s richest economy fell to 0.4% in the third quarter from 1.2% in the previous three months. The krone lost about 4% against the euro since June, raising import prices and causing inflation to peep above the central bank’s 2.5% target.

As a commodity producer, Norway’s predicament is similar to that of South Africa. The engine of its economy has stalled, due mainly to global factors, and investors are scrambling for alternatives.

Norway’s sovereign wealth fund returned just 0.1% in the third quarter, below the 3.3% three months earlier, hammered by the oil price and weak European equities (minus 4.3%).

So ignore the wide-screen glow of good cheer given off by the S&P 500, fed by five years’ worth of the Fed’s zero-interest dosh. Norway’s example shows the world’s economy is a lot worse than we think.