A presentation delivered by Dawie Klopper, investment economist and portfolio manager of PSG Wealth at the annual Road Freight Association's Convention in Limpopo, South Africa.

1. RFA Convention 2016 March 2016
Dawie Klopper
Uncertainty reigns world-wide
and it is affecting economies and
markets - whereto from here?

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Market volatility has been quite severe lately ...

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Nenegate: “take funds out at all cost”
15/12/2015

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What move the market in 2016?
Glacier
Panic in Asia
Oil collapsing
Drought in SA
SONA and the budget speech

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The low oil price has not supported spending…
$115
$29

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Uncertainty reigns world-wide and it is affecting
economies and markets - whereto from here?
• USA 10 year bond yields are declining…
• Equity prices are under pressure and in bear market territory
• Initially a lower oil price and concerns about economic growth in
China were behind this negativity
• There is a lot of socio- political tension evident in the world…
• What the world and SA need is confidence
• There is at this stage after the firing of Minister Nene a semi –
permanent discount on SA asset prices
• Economic growth in SA is under pressure
• Note the green sprouts developing – early days

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USA 10 year bond yields are declining …
Yields are abnormally low….

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Why is it that USA bond yields are staying low?
…. Maybe because of inflation in the US staying low?

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Inflation is also staying low despite very low unemployment in the US
Rise of the robots?
6% was the
first goal
Why is it that USA bond yields are staying low?

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…because of low economic growth ? Not really…
Why is it that USA bond yields are staying low?

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USA corporate profits are declining year on year…
-15%

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…the IMF is warning about growth

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... And economic growth in China is slowing
...but take note that the nature of growth in China is changing

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This weaker growth has led to lower commodity prices
Oil down 61% and
Metal commodities by 48%

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Socio political tension is having a negative effect on
confidence
• Migrants in Europe
• ISIS
• China, lack of confidence in official growth
announcements
• Brazil and impeachment of Pres. Rousseff
• USA and the election; Trump vs Clinton
• Competitive devaluation

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What the world needs is confidence...

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… however there are a few green sprouts developing?
USA 10 yr
Copper
Oil
Baltic Dry

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In South Africa it is all about our credit rating
• The Minister of Finance , together with business, labour and
civil society , are in an all out struggle to avert a downgrade.
• To begin to avert the downgrade it is important that we
achieve the targets set out in the budget.
• The apparent division between the pro growth grouping
and the group protecting own interests is also having an
effect on confidence in SA
• A low growth, large unemployment environment is not
conducive for sentiment
• What is lacking is a concerted effort by all to turn this
negativity around.
• To start this process we as a country are in urgent need of
visionary leadership.

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So, what must be achieved ito the budget?
If we don’t succeed a credit downgrade will be a real
possibility and a fiscal cliff a reality

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Strong economic growth leads to lower unemployment

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Rand/Dollar exchange rate
The NENE effect
Min of
Finance to be
arrested?

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Rand/$ exchange rate

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Rand exchange rate is determined by...

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Economic growth in SA will be under pressure in 2016

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Total vehicle sales are under huge pressure…

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… and mining production is collapsing.

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Business and Consumer confidence are negative
BER
Business confidence Consumer confidence

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… however, SA’s PMI is not confirming this negativity
BER

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SA equity market…expensive
There are big sectoral differences

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… but, how should we think about the JSE?
Maybe like a foreigner?

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In Summary
• I am still surprised that the benefits of a low oil price haven’t
resulted in more economic optimism
• And that is why I say that SA and the world need confidence.
Market participants are worried about the sustainability of
economic growth
• In my opinion the 10 year yield must rise above 2.25% and the
oil price must remain at current levels of around $45-$50 to
indicate an improvement in world –wide
sentiment/confidence
• In the mean time I am of the opinion that the rand has
weakened too much
• Investors should think like foreigners when considering
investing in SA assets… foreigners see the huge value that is
building in SA and invest whilst we are selling to them

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Copyright © PSG
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Thank you
0861 774 000
Dawie.klopper@psg.co.za

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• Thank You
• Dawie.klop