Rand unlikely to benefit from World Cup spend

Although the 373 000 estimated World Cup tourists will be spending about R8,8-billion in the next five weeks, Alwyn van der Merwe of Sanlam Private Investments says it is unlikely this will have much impact on the rand. Most of the money has already been spent—which is probably why we saw such rand strength earlier this year.

The big spend in air-tickets and hotel bookings have already taken place and many visitors will also have exchanged their foreign currency into rands.

The main question investors are asking is what will happen to the markets after the World Cup? Van der Merwe says it will simply be a return to normality.

Companies’ share prices will be determined by their relative valuations. There will be no more “World Cup” factor to build into the prices and companies will have to deliver on their earnings promises.

We have already seen companies like Murray & Roberts, which benefited at the early stages of the World Cup preparation, come crashing down as the reality of the global slowdown has caught up with them.

Currently the markets are sitting at high valuations with price-to-earnings (p:e) ratio of 16X. Van der Merwe says the only way for share prices to grow now is for companies to deliver on earnings.

He does believe, however, that the economic recovery is on track and that business confidence and profitability will return.

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