STANLIB's Weekly Focus 17 November 2008

Executive Summary of Weekly Focus

Market weekly

Global Conditions Worsening

• BCA Research house from Canada point out that global economic risks are predominantly to the downside given adverse feedback loops between credit markets and activity (no more evident than in the shipping industry, where the Baltic Shipping Index has fallen 93%).
• Paulson’s about-turn on buying toxic debt from banks is a sign that his plans are fading fast.
• Capital markets (share and bond markets) have already priced in a recession in the developed economies and a considerable slowdown in the emerging economies.
• The de-leveraging (reducing debt) cycle could mean that economies may take years rather than months to recover.
• The ALSI Top 40 Index (down 4% by 1pm on Monday) is rapidly approaching its low of 16,670 recorded on October 27^th.
• There is a possibility and hope that it stops falling around this level, thereby establishing the “double bottom” from which a good rally normally ensues. Certainly, as mentioned in previous weeks, our stock market is in cheap territory and somewhat overdue for a big rally. However, noting the new lows today of both Anglo and Billiton, uncertainty abounds.

Economic weekly

• Despite the temporary surge in markets at the beginning of the week, due to the announcement of the Chinese stimulus package, markets struggled under the burden of bad economic releases both locally and offshore.
• Germany and the rest of the Euro Area signaled the start of their recession as the second consecutive quarter of negative GDP growth was recorded.
• US retail sales slumped in October, worse than expected and reflective of a severe recession. The US also recorded its largest monthly fiscal deficit ever in October due to $115bn additional spending under the TARP (Troubled Asset Relief Program) as well as lower revenue collection.
• Locally, Fitch and S&P Rating Agencies revised down the credit rating outlook for a number of emerging markets, including South Africa. This weakened the Rand. Fortunately, the revisions were not supported by Moodys.
• Evidence of the strain SA consumers are under was reflected by our retail sales data, which remained under severe pressure in October, declining 5.0%y/y.

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