The A-Z of investing in 2009

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By Jeremy Gardiner

Aids:
Finally, an end to the madness. Barbara Hogan’s appointment as health minister was the first of hopefully many responsible decisions by the new leadership.

Bank Aid:
Bailout bills to save the world. 10 000 times the size of Live Aid and Band Aid. The equivalent of £288 for every man, woman and child on the planet.

Credit crunch:
Moving from Wall Street to Main Street. The markets have taken their pain; now it’s the turn of the economy. Expect newspaper headlines trumpeting growth slowdowns, earnings declines, retrenchments, rising unemployment etc., at least for 2009. SA will be better off than the developed world, but we certainly won’t be immune.

Derivatives:
Originally designed to limit downside risk for conservative investors. Taken and abused as gambling instruments betting on the future prices of shares, options on shares, interest rates, currencies etc. Speculators bought, sold and swapped whatever they could in the mad frenzy that saw annual trade up from $1 billion in the early 80s to $1000 trillion last year. Only 2% of monetary transactions last year involved actual goods and services. Hardly surprising it all ended in tears.

Education:
Desperately needs fixing. Been allowed to deteriorate for far too long. SA’s chances of future success hinge almost entirely on an educated youth. Hopefully the new ANC leadership can reverse this decline.

Fixed income:
After being neglected for so long, cash, bonds and fixed income products are back in vogue. Portfolio diversification is popular again. In a wild world, a predictable, stable return is better than nothing.

Growth:
Lots of talk about a global recession. The US, UK, Europe and Japan may well already be in recession. Asia will not see a recession and neither will we. Expect roughly 3% growth in SA this year and 1.5% – 2% next year.

Hedge funds:
Many investors have paid a significant price for not understanding what their hedge funds actually did. Some funds took highly leveraged bets, regardless of risk, and in markets such as these when they were meant to outperform, many have lost everything.

Inflation and interest rates:
Food and petrol prices are falling, the coming January adjustment means inflation has peaked and assuming the rand doesn’t fall further, inflation should decline quite rapidly next year. Rate cuts of around 3% are expected in 2009. All of the above will bring relief to consumers.

JSE:
A very tough year. Was inevitable after four or five great years. Fallen in line with global markets and hit hard because of our large commodity component. Probably taken most of its pain, but expect bumpy conditions going forward, with a broad-based recovery probably during 2009.

Kgalema Motlanthe:
As interim president, we couldn’t have hoped for better. Yet another rational decision by the post-Polokwane leadership. Let’s hope such rational decisions are a trend for the future.

Lekota / Shilowa:
Good for democracy; will put the constitution firmly out of temptation’s reach for any political party. Also, every municipality will now be closely scrutinised for contract fraud, corruption etc. in a way we haven’t seen before. Risk of violence in run-up to elections must not be underestimated and must be outlawed from the start.

Mbeki:
A graceful departure, emphasising the maturity of our democracy. His legacy will hopefully focus more on his achievements around our economy and across the African continent rather than Aids and Zimbabwe.

Nelson Mandela:
Celebrated his 90th birthday this year, and still the number one statesman on the planet. We are truly blessed. Happy birthday Madiba.

Oil:
Prices were pushed too high by hedge funds speculating and then pushed too low as they had to reverse out of these positions (deleveraging).

President Obama:
Unfortunately more protectionist, so he will support continued subsidisation of US farmers, which is not great for Africa. Expect him to be supportive of good behaviour on the continent and quite tough on bad behaviour. On balance, he will be good for Africa because he has an interest, and because he is likely to take a firm stance.

Q3 2008:
The worst quarter for world markets since 1929. Worse than most people have ever seen, and hopefully the worst investors will ever see in this lifetime.

Rand:
Sold off heavily as investor sentiment towards emerging markets soured. We are a very liquid market with a big current account deficit and when investors head for the door, we get hit hardest. Expect the rand to regain some of its stature during 2009 as sentiment towards emerging markets recovers.

Springbok:
Whether you are pro or not, it’s a globally recognised brand and a powerful one at that. Adopting the Protea but retaining the Springbok may be the ideal solution to a complex and emotional issue.

Trevor Manuel:
Spooked markets with talk of resignation. He has done a great job. At 12 years, he is the world’s longest serving finance minister, but at some stage he will want to go. Allow him his freedom; there’s lots of talent in Treasury. Ironically, markets also collapsed when he was appointed.

US consumer:
Under enormous pressure as the debt squeeze tightens. Grappling with recession, retrenchments, falling house prices and excessive levels of debt it may take more than rate cuts to dig them out of this hole. Expect stimulus packages and infrastructure spend to boost jobs and the economy, and expect dollars to get printed to pay for it.

Volatility:
On a scale not seen in most investors’ lives. We’ve seen the worst, but it will take a while before investors recover their nerve, not to mention the damage to their investments. Interestingly, South African investors, more used to volatility than global investors, appear to be better diversified and a lot less panicky than developed world investors, for whom extreme volatility is unusual.

World cup 2010:
All seems on track, despite numerous pessimistic predictions in the beginning. Sure it’s going to cost more; these events always do. The London Olympic price tag has gone from £4bn to £10bn. Will put us on the global map; it’s up to us to decide if that’s positive or negative.

Xenophobia:
Reared its ugly head. Not acceptable. So far seems to have been contained. Any resurgence must be extinguished fast.

Yes, we can:
The new 3-word slogan of America. Very different from the “axis of evil” mantra. Interesting times indeed.

Zimbabwe:
The world’s lowest growth, highest inflation and shortest life expectancy. Democratic elections were held; the people spoke, and yet for some reason the struggle continues. Fix Zimbabwe and the rest of Sub-Saharan Africa looks great as an investment destination.

Source: Jeremy Gardiner, Investec Asset Management, November 26, 2008.

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