STANLIB's Weekly Focus 12 May 2008
EXECUTIVE SUMMARY OF STANLIB’s WEEKLY FOCUS
OIL PRICE RISE NOT HURTING AS MUCH AS EXPECTED IN THE US
* The Brent oil price is up 87% in dollars in the past twelve months, 64% in euros and 102% in rands.
* Since the end of 2002, the price is up 337% in dollars, 196% in euros and 294% in rands.
* These are huge jumps and people are wondering why it has not yet choked off economic growth in the US, especially when combined with the credit and house price crisis.
* BCA Research note that during past economic slumps sparked by soaring oil prices, US interest rates rose at the same time. For example in the 1981 crisis the ten year US government bond yield was over 12%. Today this yield is a mere 3.8%, so BCA believe that the low interest rates (fed funds at 2%) are providing a shock absorber to the huge jump in oil prices. Sadly, this is not the case in SA.
SNIPPETS OF INFO
* Foreign buying of SA equities rose in April to R7.2 billion, taking the net foreign sales for 2008 to-date to R3.8 billion. This goes hand-in-hand with a more recent willingness amongst foreign investors to take more risk. After all, SA is currently perceived as one of the higher-risk countries because of rising and very high interest rates and the current account deficit.
* People who have heard Deputy ANC President, Kgalema Motlanthe, speak are a lot more positive about the political landscape. He has impressed those who’ve heard him with his modesty, solid thought process and speaking ability.
ECONOMIC UPDATE
* Australia, Europe and the UK voted to maintain interest rates last week because of the inflation threat.
* Morgan Stanley notes that SA is now 7th in the MSCI Emerging Markets Index with a 6.6% weighting. In their view, dedicated emerging market investors were neutral-weighted towards SA at end March.
* Morgan Stanley rates SA last out of 20 markets for the business cycle (economy) and recommends a 2% underweight position.
* SA PPI inflation jumped to 11.8% in March, much higher than expected due to soaring food and fuel costs.
* SA’s cumulative trade deficit for the first 3 months of 2008 is R21.6 billion versus R15.1 billion over the same period in 2007.
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