Globally speaking

The past 18 months have seen the emergence of three themes, says Rian le Roux, chief economist at Old Mutual Asset Managers.

“These themes were first identified by us and are now accepted as common knowledge,” claims le Roux:

* Locally the global environment has been friendly to SA

* The local economy is structurally stronger, with lower inflation

* The prospects are not fully priced into SA asset prices.

“Growth is still firm, commodity prices are also firm and activity is reaccelerating, with inflation low, while the re-evaluation of the China currency has also been good for he world economy. This revaluation should continue.

“This will ease global tensions, correct trade imbalances, and ensure the durability of the global upturn,” says Le Roux.

Energy price increases can’t be ignored, while any downturn would affect commodity prices. These two aspects would have an effect on the local economy.

On a statistical level the local economy is doing well, and the growth rate is surprising on the upside.

There is a drive and change in thrust as there is now policy support from government, there a supportive global economy, stable inflation and interest rates, and high confidence, although a softer rand would help the local case even more, says Le Roux.

The rand is a different animal – there is stability and there will be bouts of volatility, weakness, and strength, acting as an emerging market currency. The depreciation, if any, will be a lot slower. For example the rand softening failed to trigger any one-way expectations again.

“What does this mean for the long term – we are not sure. There wont be significant falls in the currency over the long term.”

So what?

This is still an equities-friendly market, with the prospects remaining good, and valuations are seen as reasonable. Bonds have structurally re-adjusted to lower inflation, although any surprises on the inflation level are not unexpected.

Cash at current levels remains unattractive, especially after tax.