ANALYSIS
by chad bushnell
OUTLOOK
FOR 2014
As we enter the new year, it is best to have
a view going into 2014 and position yourself
accordingly. The truth of the matter is that it
does not look good, at all.
B
going to destroy our economy from a growth standpoint. But
efore looking at the technical picture, let’s take note as
it has to be done.
to what happened in 2013 in terms of supporting the
market. First, we need to consider the phenomenon of
Let’s put this all into context. Our local market has had things
easing money in the form of Quantitative Easing (QE). Second,
very easy but this is going to change in the next year:
we need to look at the fact of a weak Rand against all major
1. International free money will flow out of our market.
trading pairs (USD/GBP/CHF/EUR), to the tune of around 25%
2. The Rand may strengthen from here, thereby pressuring the
on average. With a market that has 60% of its capitalisation
dual listed which are a huge portion of the weighting.
that is dual listed, there is no doubt that this has been a huge
3. Higher interest rates locally, when GDP is below 1%, could
benefit. Third, with interest rates being kept on hold locally at
very well send us back into recession.
fairly low levels, this has prompted big equity buying not only by
institutions, but also the largest retail investor allocating capital
So where does this leave us to invest looking
into equity funds in 2013.
into 2014?
So what’s going to change? QE is expected to start slowing
Well, one area we would not like to be involved in is that of our
in March, and personally I had a more dovish view on this
industrials. Industrials are meant to be the heart and soul of
before, but with recent economic data coming out of the US of
representing an economy, and due to the very lacklustre data we
late, especially in October/November even with a government
are receiving, along with the cold front expected to blow through
shutdown, the data was extremely good. The US 10-Year Yield
next year, it is wise to be taking some chips off the table. If
is currently around 2.8%,
you’ve played roulette, you’ll
and once the slightest hint of
know to keep your last chip on
Due to the very lacklustre data we are
tapering comes in again, this
the last winning number – this,
will push yields through the 3% receiving, along with the cold front expected in a market sense, would be
mark, which should add heavy
your last profitable trade in the
to blow through this year, it is wise to be
pressure to the equity market.
sector.
taking some chips off the table.
So what else?
The global story still most
certainly seems like the place
For three years the Rand
to be. But how does one get
has been spinning out of
exposure without the Rand punishing you on the downside?
control and has been down on average 60% against all
One way to trade in 2013 was to buy Global ETF’s (Exchange
major trading counters in that time. This has caused inflation
Traded Funds), as these give you exposure to a basket of
to increase to above the SARB target band of 3-6%, where
markets, currencies and, in turn, economies. But let’s get a
currently we are at 6.7%. This CPI figure, coupled with a
little ahead of ourselves and look for a punt. The tech story
Rand that is out of control, is going to force the SARB to
seems a bit frothy, but not bubbly, just yet. Social media, online
start hiking rates this year. So this would be a good thing,
gaming and online entertainment are still on the up, big time. So
right? Wrong. South African GDP came in at a dismal 0.7%
a multinational play such as Naspers could still be great and,
for the third quarter of 2013. Compare this to the US, which
more likely than not, it’s going to be one of the better performing
is growing at 3.6% with inflation more than half of that figure.
stocks in the coming months… again! But hey, everyone’s got
So, although a raise in interest rates is going to have a
their own crystal ball; that’s what makes a market, right?
positive effect on our currency market and inflation rate, it’s
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