Emerging markets are still a good bet

2011-08-13 14:22

With global stock markets in a tailspin and the US struggling to come to terms with its first credit downgrade, South African companies might curtail their expansion plans, it emerged on Friday.

This could disrupt private and public sector strategies aimed at creating jobs and could mean South Africa is facing yet another set of job losses and continued unemployment.

Carmen Altenkirch, an economist at Nedbank, said companies had been cautious about new capital spending over the past year.

This was due to concerns about the sustainability of the global recovery, regulatory uncertainty?– particularly in the mining sector?– and spare capacity.

“Recent economic indicators out of both South Africa as well as some advanced economies have already shown a marked slowdown in growth. If this trend intensifies then companies may have to revise their plans,” Altenkirch said.

Emerging-market stocks fell on Friday for the first time in three days, extending the benchmark index’s third consecutive week of losses as concern expanded that world economic growth was slowing.

On Friday, international markets were speculating about which country would be downgraded next after Standard & Poor’s downgraded the US at the beginning of this week, sending international markets into a free fall.
Speculation was rife that Japan would be next because of its huge debt.

The US credit downgrade had stirred investors to the likelihood that the idea of safe shelters might have been an overrated one.

But Kevin Lings, a senior economist, urged South African companies not to abandon plans they had for the future.

“Emerging markets, which South Africa is part of, are growing strongly ahead of developments in other parts of the world,” Lings said, adding this could assist the local economy “a bit”.

“Africa is growing rapidly, at about 5%. This means there are opportunities in the continent local companies can tap into.”

Altenkirch said during the previous recession monetary and fiscal policy was used effectively to reduce the effect of the global recession on the local economy.

“Policymakers, particularly the Reserve Bank, will continue to actively monitor developments abroad,” Altenkirch said.

“In the event the growth in South Africa does slow sharply, authorities will probably opt to delay the first interest rate increase until there is evidence that growth has stabilised.”

South Africa’s central bank and Treasury this week said the local financial markets had deep and liquid financial markets which continued to function even during this difficult time of global financial turmoil.

All rating agencies rated South Africa investment grade. Standard & Poor’s in particular, had affirmed South Africa’s sovereign rating and even revised the rating outlook from negative to stable.

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