Investors may face a bumpy ride in the short term, but market prospects for later in 2008 look relatively positive, said unit trust company Stanlib on Wednesday.
Stanlib forecasts a rise of 18% in the JSE all-share index over the next 12 months, assuming corporate earnings growth stays solid at 17%, that interest rates are close to the top, that the commodity boom continues and global growth predictions hold up.
”The major concern is that the credit debacle could take the United States into recession and South Africa will feel the fall-out,” Stanlib said.
However, Paul Hansen, Stanlib’s retail investing director, does not believe this will happen.
”We believe we’ve entered a correction and the bull-run will re-assert itself,” he said.
”The correction may be quite short, but for the immediate future, investors should be aware that risks are significantly higher than a year ago.”
The negatives include oil and food prices at record international levels, more frequent strikes locally and average pay rises at 8%, which is a drain on company earnings.
Higher interest rates and inflation, perhaps reaching 7,5% early in 2008, were also causing increasing consumer distress, with bad debt on the rise, Stanlib said.
Retail sales were only up 3% on 2006 and manufacturing (15% of the economy) was negative year-on-year.
”We continue to import more than we export and now have to attract R10-billion a month to cover the difference,” Stanlib said.
But in spite of these challenges, Stanlib believed that the underlying fundamentals remained strong.
Hansen said: ”The US housing market may be in its worst state since the 1930s, but the American economy continues to create a net gain of over 100 000 new jobs a month. The International Monetary Fund cut its US growth forecast for 2008 from 2,8% to 1,9% — an expectation of low growth, not recession.”
He said South Africa’s national infrastructure boom was immune to some degree from the rate hikes and looked set to accelerate.
”Public spending is expected to reach R490-billion in the next few years, with private-sector expansion adding further impetus.
”Despite these commitments, the national budget is in surplus while the 2010 Soccer World Cup will boost foreign tourism and create spin-off benefits across the service economy.”
Hansen said local investors had had four-and-a-half good years.
”The JSE all-share index return has averaged 40% a year since the low in April 2003. This is double the 20% average return for the past 47 years.”
He anticipated that future returns would move closer to the longer-term average — ”but that’s no reason for doom and gloom in 2008”. ‒ Sapa