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Taking Stock Spring 2018

Summer's coming

13 November 2018
Author: Jeremy Gardiner

Rising US interest rates were always going to lead to a rising US dollar, and that combination was always going to rattle emerging markets, including SA. These eventualities can be predicted to a greater or lesser degree, and markets like predictability.

What is more difficult to predict, and therefore is currently exaggerating market fears, is the US President’s strategy in his trade war with China. Whilst he is by no means wrong to be trying to narrow the massive gap between American and Chinese consumption of each other’s

Jeremy Gardiner discusses unpredictable US/China trade war tensions, “sugary growth” and its impact on South Africa and emerging markets.

products, a rational observer would assume that after the threats there would be an appropriate Chinese response. Hostility would then die down and investors’ focus could return to economic fundamentals.

The same observer would also rationally assume that given that President Trump has a re-election challenge in two years’ time, he would be wary of driving the global economy into recession. A soggy economy and stock market are very rarely conducive to re-election, and having given away precious ground in the midterms, he’ll need all the help he can get.

Plus, because the Chinese hold most of America’s debt, you would think he would spare their jugular. Well, apparently not. Instead, Trump seems to be upping the ante, and markets are heading downwards in anticipation of a global slowdown/recession.

There is one last chance for redemption, and that is at the beginning of December, when Trump meets Xi Jinping at the G20 Summit in Buenos Aires. There is talk that the Chinese are preparing a raft of proposals in terms of extra products they can source from the US (including possibly buying oil from the US rather than Iran), which will hopefully see Trump happy.

Meanwhile, back home, our new President continues gaining traction, week by week. Faced with the gargantuan task of rescuing our sinking ship, he is bailing us out, bucket by bucket. Yes, it’s taking longer than people hoped; in fact, it’s going to take a lot longer still, and he can’t do it alone. So it was great to see business and government all together in one room, with a massive joint commitment to get the economy growing. Finally, the narrative coming from government is improving – stop the populist debate, we’re wasting precious time; white monopoly capital as a phrase must go; and instead of discussing nationalising the Reserve Bank, let’s get growth, the economy and jobs going. Throw in a popular, strong and sensible Finance Minister, and we have a perfect cocktail to attract foreign investors.

But foreign investors, quite rightly, won’t commit unless they see SA investors leading. It was therefore encouraging to see at the Investment Conference, US$20bn (R290bn) being committed by a queue of SA corporates – that’s just the leadership we need to resuscitate our “dead” economy. Simultaneously, business confidence is back at the highs last seen in March during “Ramaphoria”.

Now if President Trump will just ease up, we can all look forward to a much calmer and more enjoyable 2019.

So, what should investors be doing?

Very simply, nothing. Aside from 2008, the past October was the worst since 1998, so markets have already corrected. The adjustment for bad news is priced in. A full-scale tariff war is priced in, as are our problems in this country.

Any resolutions of the US-China tariff war will be potentially positive and, at some stage, investors, both foreign and local, should notice that our President is rebuilding the SA castle, one brick at a time.

Markets go up and markets go down; that’s just what they do. The most difficult part of successful investing is not getting emotionally involved and allowing fear or greed to drive investment decisions. If you’re invested correctly according to your risk profile, then relax and wait for this to blow over. On multiple fronts, calmer skies are predicted for 2019.

Jeremy Gardiner
Jeremy Gardiner

 

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