/ 27 November 2007

The A to Z of investing in 2008

Africa

Blissfully unaware of subprime carnage and United States housing-market woes. China and India, economies of two-billion-plus people, are scrambling for resources on our continent. Properly managed, this is Africa’s “second chance”. If we can get the Chinese and the Indians to rebuild Africa’s decaying infrastructure and employ our people, the continent’s renaissance will receive a much-needed boost.

Bernanke

Alan Greenspan’s shoes were big shoes to fill. At this stage he is doing well. He has promised to “do whatever it takes” to stave off subprime woes and so far he has been successful. Let’s hope he gets it right!

China and commodities

China’s insatiable demand for commodities will provide a firm underpin to commodity economies and currencies going forward. It won’t be a nice smooth ride; it will be bumpy, but over the next 10 to 15 years the fundamentals are positive.

Dollar

Few would have correctly predicted back in 1997 that the rand-dollar exchange rate 10 years on would be at the same levels. This is not all rand strength, though: the dollar has halved in value since 2002 and looks set for another rough year in 2008.

Emerging markets

Finally getting the respect they deserve. Largely unaffected by the subprime crisis, returns from the emerging markets’ stock markets were roughly triple those of developed markets this year.

Fixed income

Returns have improved somewhat during 2007 with high interest rates, but the economic environment remains more conducive to equities.

Gold

A declining dollar, geopolitical tensions, rampant oil prices, subprime carnage and a weakening US housing outlook provide the perfect cocktail to excite the gold bulls, hence the 28-year highs.

Housing bubble

Loans of 120% on already over-inflated house prices to people who should not have qualified for loans in the first place equal falling property prices. That is the US story. South Africa remains reasonably robust, but do not expect the rampant residential property returns of the past five years.

Interest rates and inflation

From double-digit levels for most of the Eighties, South Africa’s inflation has been managed down successfully to current levels. Currently slightly above where the Reserve Bank governor would like it, the first quarter of next year will see it coming off again, which should see interest rates start declining as well, hopefully by April or May.

JSE

This has been our fifth consecutive positive year. For the past 10 years, the JSE has returned 20% a year. The JSE is a fairly good thermometer of the economic temperature of this country. We could not have hoped for more. Expect slower but nonetheless inflation-beating returns going forward.

Killed

Nineteen thousand people murdered in South Africa last year (the second-highest murder rate in the world*). It’s way too high for a civilised society and starting to unravel much of the progress made during our 13 years of democracy. We need to fix this fast.

Lights out

Underinvestment in infrastructure, coupled with faster-than-expected growth, means less electricity to go around. Infrastructure is being built, but it will take a while, so keep the candles close.

Messrs Manuel, Mboweni (and Gordhan)

The perfect cocktail for our country’s money management. Yes, we have problems, but having money available to deal with those challenges significantly improves our chances of success.

North Pole

Lewis Pugh swam there in June to highlight global warming. He covered 1km in 20 minutes in -1,8-degree water. A personal triumph for him to have achieved it; a problem for the planet that it is now possible to swim where there should be ice.

Oil

Speculative activity and geopolitical worries around the US and Iran have driven oil prices to unprecedented highs. Iran is the world’s fourth-largest supplier of oil and the Straits of Hormuz, through which two-thirds of the world’s oil passes, run alongside Iran. If Bush bombs Iran, we’re all in trouble.

Presidential succession

Regardless of who comes next, our Constitution is strong. Debate will be robust, and some candidates will be more market friendly than others. Don’t worry, it could well be positive; don’t expect much to change.

Quotas

The Rugby World Cup taught us that being winners is hugely important. Transformation in sport is vital, but attention and resources should be focused from grassroots up, not the other way around. Succeed there and the demographics will take care of themselves.

Rugby World Cup

Once again, a massively unifying event. Even more so than 1995. Just when we really needed it!

Soccer World Cup — 2010

The German World Cup rebranded the German people as highly efficient (which everyone knew), but also as a fun-loving nation, in a way that no advertising campaign could ever have achieved. We need to be rebranded too: we need to show the world that this can be a safe and friendly holiday destination. That is our challenge. It is also unfortunate that it is happening in winter, not the best time of year to showcase this country.

Tourism

Contributes more to GDP than gold, and it is an industry where we do not compete with the Chinese. A great job creator, a great growth area and a great foreign-exchange generator.

US

A slowing economy, a falling housing market, subprime issues and high interest rates are placing enormous pressure on US consumers. The US may still see a recession, but this time, thanks to Asia, the rest of the world will slow, but not stumble.

Volatility

Volatility is here to stay. It will take 12 to 18 months to unwind the excesses of subprime and the housing market, so expect a bumpy ride ahead.

War in Iraq

It has cost $400-billion to $500-billion, nearly 4 000 Americans dead and tens of thousands of Iraqis killed. And no solution is in sight. Just hope that Iran is not next!

Xchange controls

One of the last vestiges of apartheid, administratively impossible, generally irritating and a disincentive to foreign investors. We do not deserve them. It is time for them to go.

Yuan

The Chinese currency. The Chinese artificially prevent it from strengthening, thus enhancing their exports. They also artificially regulate their cost of capital (that is, the price at which banks lend out money) and their cost of labour (you can’t strike in China!), a combination that provides them with a production ability against which no one can compete.

Zimbabwe

Near complete collapse. Gives Afro-pessimists all the ammunition they need to slate us and our continent. Can’t help feeling the end of the Mugabe era must be nigh. A Mugabe-less Zimbabwe would change the whole investment climate of sub-Saharan Africa. Please may 2008 be the year!

* According to NationMaster, which compiles data from sources such as the CIA World Factbook, the United Nations and the OECD

Jeremy Gardiner is director at Investec Asset Management