Intelligent investing means knowing what drives key markets. The latest (June) RMB Asset Management Summary says South Africa’s civil service strike has crippled state institutions and may cost the economy billions of rands, while the impact of higher wages could push up inflation and interest rates.
The strike, which has closed schools and caused chaos at state hospitals for more than two weeks, has highlighted the ideological divide between the business-friendly policies of the ANC government and its labour allies, says the report.
Economists say it is difficult to count the cost in lost productivity, but some estimate it may be as high as R3-billion.
The impact on investor confidence, too, was hard to quantify. More worrying, they say, was the effect high wage demands will have on inflation and, ultimately, monetary policy.
It goes on to say South African shares broke into fresh record territory last Friday, lifted by a rally in mining stocks like Lonmin and gains in the United States.
US core consumer price index data eased inflation concerns that have been dogging investors in recent days.
The blue chip Top 40 index shot up 1,32% to a fresh all-time peak of 26 508,70 points, while the broader All-Share Index gained 1,12% to 29 313,78 points, also a new record. The Top 40 index has gained 17% so far this year.
According to the summary, oil prices touched a 10-month high last week, sparked by worries of low US fuel supplies from creaking refineries and an upsurge of violence in the Middle East.
Friday was the third day of gains after a weekly US report on the Wednesday before showed fuel stocks failed to build up and heating-oil inventories fell. That sparked concern that US refiners, running at 89% of capacity, would have a hard time making enough fuel during prime vacation season.
The rand firmed against the dollar, but analysts said it remained vulnerable to international developments, from which it would take its lead this week. In the past month, data has suggested a rebound in US growth, prompting markets to price out expectations of a rate cut this year.
A US rate hike would hurt emerging market currencies, such as the rand, which benefit from carry trade, whereby traders borrow low-yielding units to invest in high-yielding assets.
Local markets hoped for good news this week from the Reserve Bank’s quarterly bulletin.
It is set to show that the country’s current account narrowed in the first quarter of this year, after ballooning to a record R143-billion in the previous quarter.
It widened to 6,4% of GDP from 3,8% the previous year — its largest ratio in more than 25 years.