November 2014 – ZA Economist

Address poverty in SA and let inequality look after itself

South Africans are often reminded that incomes in SA are the most unequal in the world. We are as often told about the grave issues of poverty and inequality that confront the economy; as if inequality in SA causes poverty.

But does it? And may not less inequality (engineered by policies to tax the rich and give more to the poor) well lead to slower growth over the longer run, to the disadvantage of those in the lowest deciles of the income distribution? Less equal incomes or wealth (when tolerated) may well lead to a significantly better standard of living for the (relatively) poor. Continue reading Address poverty in SA and let inequality look after itself

Interest rates: No need for a hike

Dependence on the data – and the inflation forecasts – mean there is no case for raising the repo rate now , nor maybe for another 12 months or longer

There would seem to be no reason at all for the Reserve Bank to raise its repo rate tomorrow. Investec Securities, applying its own simulation of the Reserve Bank forecasting model, predicts that the Reserve Bank forecast of inflation will have been unchanged ahead of the MPC meeting. This simulation is for inflation to average 6.2% for 2014(largely behind us now), 5.7% in 2015 and 5.8% in 2016. Thus inflation is predicted to come in below the upper end of the target range. Continue reading Interest rates: No need for a hike

Point of View: In praise of the global consumer plays

How the global consumer plays on the JSE have kept up well with the S&P 500.

A noticeable feature of global financial markets has been the strong recent performance of the S&P 500 Index, both in absolute and even more impressively in relative terms. As we show in the charts below, the S&P 500, the large company benchmark for the US equity market, continues to outperform both emerging markets (EM) and also the US smaller listed companies represented in the Russell 2500 Index.

The S&P 500 has gained approximately 15% against the MSCI EM benchmark since a year ago and is about 5% stronger vs the Russell.

We also show that, compared to a year ago, the SA component of the benchmark EM Index (MSCI SA) that excludes all the companies with a primary stock exchange listing elsewhere (SABMiller, British American Tobacco, Anglo American, BHP Billiton and the like) has done well compared to the average EM market, of which only about 8% will be made up of JSE listed companies. The JSE All Share Index, converted to US dollars, has lagged the S&P 500 by about 10% over the past 12 months.

Continue reading Point of View: In praise of the global consumer plays

Hard Number Index (HNI): Pulling out of the dip

The State of the SA Economy in October 2014

Two up-to-date indicators of the state of the economy are now to hand. New vehicle sales in October as well as the cash in circulation at the October month end are now known. As we show below, new vehicle sales have held up very well in 2014. It appears that the sales cycle has turned up, indicating that if recent trends continue the industry might look to improved sales in 2015, which would be close to the record ales volumes achieved in 2006.