I am very worried about the South African economy these days; very worried. Just look at the situation we currently find ourselves in.
Internationally, gold, perhaps no longer the historical "backbone" of the South African financial system it once was, still plays an enormously significant role in SA and in general is a very strong emotional driver within the South African economy.
It has performed extremely well over the course of the last four years and this performance looks set to continue. Retail demand remains very strong and could perhaps increase further as the Chinese economy grows apace. Indeed, commodity demand globally maintains an upward trend, which will on-balance favour SA.
Furthermore, as the major international economies once again start to expand strongly, this should greatly assist the growth of the South African economy.
On the domestic side of things, monetary policy is independent of any major political influences these days, and is in very capable hands as evidenced by the remarkable performance of the rand over the course of the last few years, as well as the very controlled inflation environment we currently enjoy.
Fiscal policy too is under remarkable stewardship with Trevor Manuel approaching 10 years in his position as finance minister, his great success being undeniable.
And finally, the government in general is endorsing and employing sensible, progressive economic and social policies which appear to be received well by the general population and are slowly taking their desired effect.
Indeed this all looks very worrying.
And growth? Well this is chugging along nicely (at a rate which I believe is far higher than the official statistics suggest); inflation is at record lows and appears to be relatively stable, and complementing this is a very benign interest rate environment which, while perhaps entering an upward trend in line with many global economies, shows no signs of dramatic change any time soon. Moreover, preparation for the 2010 World Cup will gradually feed into the growth and investment figures.
Property too is performing well, and with the resulting wealth effect derived from a strongly performing property sector, this will have further economic benefits through increased consumer spending, further supporting the nascent economic growth.
Finally, from a geo political perspective, SA is very well situated, with the progressive, accepting and encompassing view developed over the last 10 years starting to pay healthy dividends internationally as the situation deteriorates in the Middle East.
So what is so worrying about the current South African economic situation? Simply this: that everything looks far too good and there appears to be no obvious dangers on the horizon.
In my previous life as a trader, there was a phrase which I was taught at a very early stage: "There is always a fool in the marketplace; if you don`t know who the fool is, take a look in the mirror and consider getting out." Adapting this phrase somewhat, when considering any investment, one should always look not only for the positives but also, and perhaps more importantly, one should search high and low for the negatives. Currently I am having trouble finding any major negatives in the case of the South African environment and it is exactly this that I am worried about. Perhaps I am a pessimist, but because things simply look too good to be true, I would advise erring on the side of caution when considering any opportunities.
Share
