Prowess Investment Managers

Transcription

1 gathering clouds: South Africa's economic situation and how it affects you Kelebogile Moloko Prowess Investment Managers

2 what to expect ~ how to identify a recession ~ what are the implications for South Africa... and us ~ global overview: what caused it ~ domestic economy: what it means ~ conclusions

3 recession? a significant decline in economic activity spread across the economy, lasting more than a few months/two or more quarters source: NBER

4 how to spot a recession? a recession is normally visible in: ~ real Gross Domestic Product (GDP) ~ real income ~ employment ~ industrial production; and ~ wholesale & retail sales

5 the butterfly that flapped its wings! how did it all start? t? Jan-88 Jan-93 Jan-98 Jan-03 Jan US House Prices US Fed Funds Rate source: Economic research Federal Reserve of St Louis, Standard& Poors

6 housing deflation a global phenomenon Changes in Real House Prices Korea Switzerland Netherlands Italy Ireland Japan Finland France Australia United States Norway Canada Sweden Spain United Kingdom New Zealand Denmark Change during 2007 Change in 2008:H1 source: IMF

7 spending power diminishes

8 consumption o falls

9 real GDP and industrial production Jan-5 0 Jan-53 Jan-56 Jan-59 Jan-6 2 Jan-6 5 Jan-68 Jan-71 Jan-7 4 Jan-77 Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-9 5 Jan-98 Jan-01 Jan-04 Jan-0 7 Jan-47 US GDP YOY % Change US Industrial Production Index % Change source: IMF, Economic research Federal Reserve of St Louis

10 unemployment e rises

11 how bad could it be? history & lengths of US recessions source: Months

12 how far have we come? Global GDP: 2008Q4 1.0% %, % G-20 Nations in Technical or Severe Recession: 2009Q1 2008Q4 2008Q3 2008Q2 2008Q1 2007Q4 USA Japan Germany USA Japan Germany USA Japan Germany USA Japan USA Japan UK France Italy UK France France Italy Italy Canada 43% of Global GDP 41% of Global GDP 38% of Global GDP 28% of Global GDP 28% of Global GDP And Not in Recession in Q4: China, India, Russia, Brazil, Mexico, South Korea, Turkey, Indonesia, Australia, Saudi Arabia & South Africa (in order of GDP & comprising 34% of worldwide GDP; excludes 20th membership, courtesy to EU) Remaining 160 nations comprise only 23% of worldwide GDP.

13 what to do? monetary ypolicy response Interest Rates Dec-02 UK Euro USA Japan Dec-05 Dec source: Bloomberg, BJM Research, INET

14 cumulative monetary policy response since August 2008 Iceland Russia Hungury Brazil Japan Indonesia Mexico South Africa Malaysia US Thailand Canada China Euro area Swtzerland Chile South Korea Norway India Australia UK New Zealand source: Bloomberg, BJM Research, INET

15 and fiscal stimulus (government spending) Stimulus GDP package % of Infrastructure % of Country (2007 USDm) (USD bn) GDP (USD bn) GDP China US SA Brazil Germany Mexico Saudi Arabia Taiwan Spain France Source: Empowerdex Economic Research

16 where eeis sthe money eygoing? g Global Stimulus Packages R&D, 3% Education, 5% Healthcare, 3% Workforce, 3% Automotive, 5% Energy/Green Tech, 9% Tax breaks, 36% Public Sector Jobs, 9% Infrastructure, 16% Financial, 13% Source: Empowerdex Economic Research

17 but it means big budget deficits! General Government Fiscal Balances Emerging and developing economies World Advanced economies source: IMF

18 inflation declines but the focus might shift to deflation? CPI Inflation Emerging and developing economies World Advanced economies source: IMF

19 the usual global inflation clouds evaporate... for now Real Commodity Prices 450 Oil Metals Food source: IMF

20 implications for emerging markets

21 emerging e g markets not immune 280 MSCI World Index MSCI emerging market Index / 7/01/12 00/ 0/01/12 03/ 3/01/12 06/ 6/01/12 09/ 9/01/12 Index 100 (1997) source: INET, acsis, 27Four Investment Managers

22 liquidity drying up as a result of risk aversion Current account balance as a % of GDP Malay aysia China Venezu zuela Rus ussia Nige geria Thaila iland Philippi pines Argent ntina Chile Mex exico Brazil Czech Repub ublic India Pola oland Hung gary Kenya Tur urkey Sri Lanka South Africa Roma mania source: INET, Futuregrowth, IMF investmentt risk

23 foreign trade the biggest risk to economic growth Baltic Dry Index Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 source: INET, IMF, Bloomberg, RMB FICC foreign tra de risk

24 foreign trade the biggest risk to economic growth Growth in Global Industrial Production & Merchandise Trade de risk Industrial production LHS Merchandise export value RHS fore eign tra M1 1998M4 1999M7 2000M M1 2003M4 2004M7 2005M M1 2008M4 world trade volumes expected to fall by 2.8% in 2009 from 4.4% source: INET, IMF, Bloomberg, RMB FICC

25 is there a silver lining?

26 is the US consumer the saviour again? Household Debt-Income Ratios Italy South Africa France Germany Japan Canada US UK Source: OECD US consumer accounts for +/-70% of US GDP and +/- 25% of world GDP

27 is the US consumer the saviour again? US Household Net Worth & Indebtedness % Household indebtedness Household net worth source: IMF

28 is the US consumer the saviour again? US Credit to Households USbn Residential mortgages Other credit to households source: IMF

29 is the US consumer the saviour again? US Real Personal Consumption & Saving Rate Q1 2003Q2 2004Q3 2005Q4 2007Q1 2008Q2 2009Q Savings Rate Real Personal Consumption source: IMF

30 signs of bottoming in the housing market US housing starts at record lows

31 stabilisation sat in labour markets Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Unemployment USA Unemployment UK Unemployment Canada rising unemployment will continue to undermines income and spending source: INET, 27Four Investment Managers

32 return of confidence in the banking system 380 Dow DAX S&P Nikkei /01/96 30/11/97 31/10/99 30/09/01 31/08/03 31/07/05 24/06/07 world equity markets still searching for the bottom! source: INET, acsis, 27Four

33 synchronised sed downturn in play GDP Growth & Forecasts Emerging and developing economies 3.3 World Advanced economies source: IMF

34 gathering clouds: South Africa

35 is SA on the brink of a recession? SA GDP q-q q saar% Mar-90 Mar-93 Mar-96 Mar-99 Mar-02 Mar-05 Mar-08 the manufacturing sector posts the largest decline in history! source: INET, Vector Securities

36 recession signs continue to mount!

37 recession signs continue to mount!

38 the verdict is out as manufacturing plummets!

39 It looks like we are heading for a recession SA real GDP source: INET, Vector Securities

40 SA government growth projections 4 3 SA Goverment Growth Projections % GDP

41 what can South Africa do to combat the effects of the global recession??

42 SA government e joins the party Budget deficit ratio (% of GDP) source: National Treasury, Vunani Securities, INET

43 is the SARB lagging g behind? Repo Rate 6 3 CPIX\New headline CPI 0 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Inflation (LHS) Repo Rate (RHS) source:inet, Reuters

44 commodity currencies to track global l cycle USDZAR Dow 15, , ,000 12, ,000 10, , ,000 7, ,000 5, /02/04 07/03/04 07/04/04 07/05/04 07/06/04 07/07/04 07/08/04 07/09/04 07/10/04 07/11/04 07/12/04 08/01/04 08/02/04 08/03/04 08/04/04 08/05/04 08/06/04 08/07/04 08/08/04 08/09/04 08/10/04 08/11/04 08/12/04 09/01/04 09/02/04 source:inet

45 recession and the consumer

46 the pain continues

47 access to consumer credit tightens 40% 35% 30% 25% 20% 15% 10% 5% 0% 31/10/ /04/ /10/ /04/ /10/ /04/ /10/ /04/ /10/ /04/ /10/ /04/2008 Money supply Private Sector Credit Extension source: Reuters 3

48 debt servicing costs still high but Insolvencies & Liquidations Jan-84 Jan-85 Jan-86 Jan-8 87 Jan-88 Jan-89 Jan-90 Jan-9 91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-9 97 Jan-98 Jan-99 Jan-00 Jan-0 01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-0 07 Jan-08 Jan-09 6 per. Mov. Avg. (Liquidations) 6 per. Mov. Avg. (Insolvencies) source: Stats SA, Vector Securities, INET Jan-83

49 tax relief e an added benefit e Personal Income Tax Relief, Rm 16,000 14,000 12,000 10, ,000 6,000 4,000 2, ,600 source: National Treasury

50 employment and income growth at risk

51 wealth implications

52 property.have p we seen the worst? ABSA House price index 45% 35% 25% 15% 5% -5% -15% Nov- 76 Nov- 79 Nov- 82 Nov- 85 Nov- 88 Nov- 91 Nov- 94 Nov- 97 Nov- 00 Nov- 03 Nov- 06 ABSA House price index source: INET, Vunani Securities

53 can you go wrong holding cash & bonds? 12 month rolling returns 65% 55% 45% 35% 25% 15% 12.73% 5% 11.51% Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08-5% -15% -25% -35% % Bonds Equities Cash source: INET, 27Four Investment Managers

54 investment e t implications ~ cash offers a safe haven but offers no upside in a recovery scenario ~ bonds are attractive provided we have seen the worst ito global risk aversion ~ property likely to recover in late 2009 ~ equities recovery uncertain!

55 conclusion c o ~ global l recession the end is not in sight ~ trade and investment effects pose further downside risk to emerging markets including SA economy not to be underestimated! ~ consumer recovery will take some time ~ hard work and patience imperative virtues!

56 thank you Kelebogile Moloko Prowess Investment Managers