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Well done SA

15 December 2004 Angelo Coppola

Jeremy Gardiner, director at Investec Asset Management, says that with US elections successfully over, 2004 is all, but for some much needed rest, officially over.

On the US elections, love him or hate him, you've got him, and for another 4 years at that. There are two ways Mr Bush can approach his second term.

He could see the result as a majority endorsement of his first term in power, (which he has alluded to when he speaks of the 'political capital' the election has given him which he can now 'spend' in the Middle East).

The other approach he could take is to admit that 48% of Americans don't agree with his approach and that therefore he should play a more inclusive role in global politics going forward.

Which route he will follow remains to be seen, however, you can expect the following:

*A weaker dollar - it is widely believed that President Bush will not only not reduce the deficits, but could actually exaggerate them, forcing the currency to adjust accordingly.

*A weaker dollar means support for the Rand.

*A firmer oil price as Bush continues to add to the strategic oil reserves.

*More bark than bite - not only is the US reluctant from a financial (not to mention humanitarian) perspective to embark on another war, it is felt that they probably won't need to.

"Errant Nations" have learnt that if you irritate the US (who apparently spends more on defence than the next 20 nations combined) that they will attack you, and this "threat" is expected to influence behaviour accordingly.

In addition, be thankful that there was a result. I was in New York on election day and there were apparently armies of lawyers massing in Ohio to challenge the result.

Kerry conceded graciously, (some would say prematurely) and markets welcomed the result.

Back home, in addition to successfully seeing through our third democratic elections the year started with us not only celebrating our first 10 years of democracy, but also reminding both foreigners (and locals) just how successful we've been!

It therefore seems fitting that the year should end with us being rewarded as a country for our endeavours in this regard, with the 2010 World Cup Soccer thrown in as a bonus!

Anybody expecting the first 10 years of democracy in a country, that has seen a fundamental transition of the order that we have to be smooth, would have been naïve.

In fact so stormy have markets and currencies been, that South Africans are struggling to cope with the recent calm waters and sunshine.

Inflation is firmly under control, the currency is almost too strong, markets are up strongly, property prices are making those who own properties feel wealthier, and low interest rates are seeing consumers spending, in fact so much that certain of the retailers are worried that they're actually going to run out of stock this December!

Although the National psyche has made huge progress in terms of moving from inherent pessimism to a healthy optimism, already certain commentators are calling an end to the party.

Whilst good times can obviously not go on forever they don't necessarily always have to end in disaster. So what therefore can we expect from 2005?

Oil - not as messy: Normally, in the oil market, demand and supply are fairly evenly matched (by OPEC). In addition, there is a surplus layer that absorbs any supply or demand disruptions, cushioning the price effects of such disruptions.

What happened in 2004 was that China swallowed the entire surplus cushion, leaving demand and supply disruptions (of which there were many) to wreak havoc on oil prices.

Most of these disruptions have proved temporary, and while the oil price will be supported as Bush adds to the strategic oil reserves, we see prices returning to the $30 - $35 per barrel levels during the first half of 2005. This will impact positively on the petrol price.

Inflation - compliantly benign: Lower fuel prices and benign food inflation at the producer level should ensure that inflation stays within the 3-6% parameters set by the Reserve Bank.

Interest Rates - lower for longer: Benign inflation will allow interest rates to stay lower for longer and possibly even drop further.

A growing economy: Lower rates should boost the economy by increasing spending power as well as creating new jobs.

Foreign Investment - finally on its way: Increased growth, plus a 10 year track record of doing things right, is finally seeing us being rewarded by foreign investors.

You've seen what they did to property prices, and recently you have seen it in the equity market. Foreign investors know that a declining US Dollar means a stable/strengthening Rand.

In addition, they see our economy with solid growth prospects, devoid of the imbalances so prevalent in theirs and on top of that, far more attractively priced. Eventually, they have to ask themselves: "Why am I underweight South Africa?"

2005 should therefore be 'more of the same'.

Lower oil prices, stable inflation, a stable Rand, higher growth, further job creation, stable interest rates, buoyant markets, all leading to a relatively calm environment.

We're not saying there won't be issues - there certainly will be issues - but relative to the turbulence of our transition years, the clouds are thinner, the sun is shining and the winds are dying down.

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