/ 16 January 2003

Economy expected to tick along at 3%

South Africa’s economy is expected to remain growing at around the 3% level achieved over the last two years, according to Craig B Pheiffer, Chief Investment Strategist at Sasfin Frankel Pollak Securities (SFN).

He says further tax relief can also be expected in the February budget following the ongoing improvement in revenue collections, although this will be geared mostly toward the lower- and middle-income earners.

Inflation, according to Pheiffer, is set to fall sharply in 2003 for both technical reasons (the high base formed last year) and fundamental reasons (the improving rand), which should provide the Reserve Bank with the necessary ammunition to cut interest rates at least twice in the year with the June MPC meeting slated for the first bout of monetary policy easing.

“Although it is impossible to pick the top, the remarkable strengthening of the rand should come to an end as interest rates fall and a year-end level between R9,25/$ and R9,75/$ is envisaged.”

Whatever the absolute level of the rand, a much more stable currency is expected in 2003 following the extreme volatility of the last 18 months, he predicts.

Turning to the markets, he says the bond market has factored in the positive outlook for inflation and interest rates and while some capital gains are still possible over the year the market offers little relative value. A weaker rand should help the rand-hedge shares make up some of their losses of last year and improving commodity prices on the back of a slowly growing global economy should help the resources counters.

“The only decision to be taken on gold shares is when to sell them. There appears to be little on the horizon that will spark the financials into life but improved equity markets and a more stable currency should help the banks and the life counters. Overall the market remains competitively valued at a 10,5x P/E and astute investors will be picking up the local blue chips in weakness.”

Pheiffer adds that while some sectoral themes were prevalent in 2002, individual stock selection provided the greatest returns to investors. – I-Net Bridge