The Year that 2009 will be...
By: Tamas Kulcsar (pictured), Investment Analyst, Glacier by Sanlam
January 2009
After a difficult 2008, investors are eagerly hoping 2009 will be less chaotic, more prosperous, and simply, better.
However, crises do not simply disappear overnight as ‘Auld Lang Syne’ is merrily sung; uncertain is perhaps a more realistic description of the year that will be.
United States of America: Barack Obama will be sworn in on 20 January. Even before taking office, he has approved an historic bailout package (for automakers) and is busy tabling an economic stimulus plan worth $775 billion, which he aims to pass into law by mid-February. Parts of his plans have been critiqued as being too idealistic and ineffective in today’s economy, but Congress agrees that the US has to “act boldly and act now” to prevent widespread economic collapse.
Negative sentiment is widespread. What started out as a Wall Street problem quickly spread to Main Street as worsening economies and falling stock markets affected the psyche and risk appetite of investors. Despite South Africans having been fairly resilient they have not entirely escaped the negative sentiment and impact of the global slowdown.
Corporate profits are down, again more so globally than in South Africa. Losses are coming through thick and fast with Thomson Reuters expecting Q4 earnings for the S&P 500 to be 15.1% lower than Q4 2007. South African companies have thus far been relatively unscathed, with no serious losses being reported yet.
Economic Stimulus Plans are being passed by the governments in most major economies. These are the largest interventions in history ever undertaken to prevent a global economic meltdown. As the financial crisis is unprecedented, the effectiveness (and ramifications) of these measures will only be known in years to come.
Recession has officially been declared in the US. Singapore, New Zealand, Japan and the European Union as a whole are officially in recession, with Germany’s GDP falling 0.5% in Q3. Growth in the UK declined from 0% in Q2 to -0.6% in Q3. South Africa’s growth for Q3 slowed to 0.2% as mining and manufacturing output fell.
Trade between global leaders has slowed, weighed down by the struggling US consumer and their inability to borrow. China’s exports in November were down 2.2% y/y, the first monthly decline since June 2001, coinciding with the last US recession. Imports were down 17.9% y/y. However China’s proposed investment in infrastructure may boost demand for commodities which should benefit commodity-producing developing market countries.
A local battle between the ANC and COPE should be beneficial to SA’s democracy in the longer term. Increased unhappiness surrounding the ANC’s under-delivery means the ANC will need to deliver on the promises made in their latest Manifesto or will find themselves sitting in the foyer of the Mount Nelson while COPE enjoys a high tea.
Inflation is likely to fall back into the SARB’s 3% to 6% range during 2009. With oil down over 70% from its July 2008 peak, petrol prices down almost 50% and maize crops improving, consumers can expect the prices of goods to drop in 2009. The extent of price action however depends on producers’ willingness to reduce prices, and hence margins.
New Year, new opportunities. The unprecedented volatility last year has given rise to a number of once-in-a-lifetime opportunities to buy good-quality companies at bargain-basement prices. The examples are endless and include many Top 40 companies whose shares are trading as much as 60% lower than recent highs.
As uncertain as 2009 will be, one can rest assured that it should be slightly less chaotic than last year and with patience and discipline, long term wealth can be created.
