The A-Z of investing in South Africa in 2007

Aids
The warnings of the late 1980's and early '90's, which forecast that the South African economy would collapse by 2000 because of Aids, have proved unfounded.  In fact, were growing at the fastest levels in decades.  A massive humanitarian crisis, which needs to be addressed more proactively.  A refreshing new approach appears to be coming through from government.

Bush and Blair
Regime change is close.  The end of an era.  Blair will be gone soon; Bush still has two hard years ahead.

China and Commodities
China's insatiable demand for commodities is a massive opportunity for Africa.  We need to use the Chinese and Indian money to rebuild Africa's decaying infrastructure and employ our people.  Africa's risk is that certain unscrupulous leaders sell their countries to the Chinese who will buy them.

Dollar
Twin deficits coupled with a peak in US interest rates should see the US$ under renewed pressure during 2007.  Were not advising you to bet against the US$; just make sure you are properly diversified.

Equities
After three massive years of 40% plus returns from the South African equity market, expect a more pedestrian performance going forward.  For good stock pickers, opportunities still remain.

Fixed Income
The past three years have seen the South African investment environment skewed significantly in favour of equities over bonds.  Expect a more equitable return environment going forward.

Geo-politics
Probably currently the biggest risk out there.  The world is not a stable place and Iraq hasnt helped.  Watch out for any aggression/wars involving countries with oil.

Housing Bubble
Boom, bubble, call it what you want.  The US housing market is currently going sideways to down.  2007 will see either a soft landing, a hard landing or a crash!  We won't be unaffected, but we are slightly different: we have an emerging Black middle class which will stimulate demand.  In addition, for the past 20 years, South Africans with surplus cash took every spare cent overseas, so our prices needed to catch up.

Interest Rates and Inflation
A benign oil price should keep inflation in check, but rampant consumer borrowing and spending will probably see another two 50bps increases.

JSE
Continues hitting new highs on a weekly basis - just rewards for the economic successes we have achieved.  Expect a slowdown next year, however, barring an abnormal event, solid inflation-beating returns look likely.  The days of CPI +40% are probably over though.

Kebble
It's very important that the killers are found. We do not live in a Russian/Colombian democracy, where businessmen are simply 'taken out'. Now let's see who's involved!

Labour
Still over-regulated.  Deregulation is on Government's agenda.  Any disincentive to hire has to be eliminated.  Let's loosen up the labour market and start employing the starving unemployed.

Mbeki, Mboweni and Manuel
A phenomenal combination.  These are the men we have to thank for the economic and general prosperity we are enjoying today.  Appreciate their enormous efforts and be very thankful we don't have to add 'Mugabe' under 'M'.

Nelson Mandela
Despite a well deserved slowdown in public appearances, his global presence is without equal.  We are indeed blessed that he is South African.  Single handedly responsible for uniting black and white South Africa.

Oil
Fewer hurricanes, receding geopolitical tensions, additional capacity coming on line and a decline in speculative activity have led to welcome relief.  A reversal in any of the factors mentioned above would see the price rising substantially.  Remains a key risk.

Property
Listed property is increasingly included in South African investment portfolios.  A good diversifier and a good source of yield, but dont depend on capital appreciation, as that can be variable.

Quest for ..
6% growth - difficult to achieve in a slowing world, however we are growing faster than we have for decades and this trend looks set to continue!

Rand
The beloved currency.  A spectacular collapse followed by a meteoric rise and now an environment of gradual depreciation.  12% down last year, roughly the same this year.  While movements will always be exaggerated because of the current account deficit, a sustainably lower inflation and interest rate environment should reduce currency volatility.

Scepticism
The third quarter of this year saw a wave of pessimism sweep across the country.  From crime to Zuma, South Africans were worried.  However, new strategies for crime, AIDS and 2010, along with less political rhetoric, has seen the mood lifting once again.

Tutu
The conscience of our Nation.  Our own patron saint.  May 2007 see more South Africans listening to him, and less criticising him.

US Consumers
Have had to put up with rising interest rates, petrol prices and inflation.  The big question for 2007 is, if the US housing market weakens and the US consumer stops spending, can the Asian consumer take over, thereby alleviating a global recession? 

Volatility
For too long, South Africans have had to live with extremely volatile stock markets, currency markets, inflation and interest rates.  Prudent macro-economic policy management should hopefully see us entering a sustainably more stable environment going forward.

World Cup 2010
Its going to cost more than expected, but it is going to showcase the country, provide employment and give us a goal to strive towards.  Dont try and emulate the Germans; lets create 'A Funky African World Cup'.

Xchange Controls
The last remaining vestige of Apartheid era paranoia will hopefully be abolished in the not too distant future.  All indications are that the abolition thereof would result in greater investment flows.

You
From a nation of pessimists in the late nineties, squirreling every cent offshore, to a nation of optimists in 2003/4 spurring a property boom, back to renewed pessimism in 2006.  Fortunately, the mood appears to be lifting, and 2007 should improve further.  Sure we have problems, but together we can solve them; divided we will fail.

Zuma
What a year!  2007 will see the emergence of various contenders for the presidency - may the best 'person' win!

By Jeremy Gardiner, Director,  Investec Asset Management