My Predictions for 2015 – Part 1

2015-01-09 08:33

By Vivian Atud

Summary

  • In this first part of my two part predictions for 2015 I will take a look at where the global and domestic economy and markets are headed in 2015.
  • South Africa has been through a roller coaster ride in 2014 and ended up growing just 1.4 percent below all expert forecast at the beginning of 2014.
  • The JSE should do better in 2015 than it did in 2014 benefiting from expected improved economic performance worldwide and investors moving money into developing economies when interest rates start increasing in the US.

On a global front, the US central bank should increase interest rates by mid-2015 and this will bring significant volatility to the equity markets. The BRICS economies will continue to perform marginally and the rand would continue to fall against the dollar in 2015. I expect oil prices to improve by the end of the upcoming twelve months however, they will remain weak for most of the year. In the second part of this two part series, I will focus on my stock picks for 2015.

The Economy:

The South African economy is yet to fully recover from the global economic meltdown that restrained growth since 2008. Growth rates remain below 1.5 percent in 2014. Manufacturing was one of the worst performers of 2014 from first quarter through fourth quarter and unemployment was a little unchanged at 25.4 percent. South Africans are desperate for good news in 2015.

It is not surprising that this poor performance happened at the backdrop of severe electricity crisis and labour relations challenges. The economy saw a series of power cuts as operational and capacity constraints at ESKOM forced the power utility to carry out a series of load shedding’s that impacted heavily on various businesses. Increased consumer price inflation over the past years kept consumer spending lower than expected.

Where is the economy heading to in 2015? As an optimist I would dare to think that the economy could rebound to over 2.5 percent growth rates in 2015. Knowing the current energy and labour crisis one may debate whether or not a growth rate of over 2.5 percent is feasible in 2015 and where will the growth come from? It is my contention that energy supply will improve in 2015 as Eskom starts feeding in additional energy from renewables and additional supply from Medupi and Kusile. I expect the labour relations to be much improved as both employers and labour unions come to terms with the negative impact of the protracted strikes of 2014.

According to global growth forecast, South Africa should grow 2.7 percent in 2015 and 3.3 percent in 2016. Such growth rates will be a step in the right direction as it will lead to improved job creation and more consumer spending that will continue to drive growth. Average wages are also expected to increase and with falling oil and petrol prices-this will be more good news for South African consumers in 2015.

The Market:

Increased job and economic growth should translate into a solid market outlook for 2015. The JSE will do better in 2015 than it did in 2014. We will also see more foreign investors on the market as domestic conditions improve. I expect returns to be in the high single digits for 2015. With the economy improving and fuel prices coming down, coupled with the US FED ending its Quantitative easing (QE) program, one should see a marginal increase in interest rates from the middle of 2015 in South Africa. Interest rates increases will be a good thing for financial services businesses as their performance will improve.

As global growth remain weak, manufacturing and other export dependent sectors will continue to perform marginally in 2015. Small caps should do well. With improving job growth and interest rates improving, I would underweight homebuilders. Consumer discretionary plays like retailers and restaurants should continue to see increased demand due to lower petrol prices and better consumer confidence.

High energy consumption sectors like airlines should do well in 2015 with reduced oil prices which constitute a major part of their input costs.

This is my take/predictions on the economy & markets for 2015. On Tuesday next week, I will offer some specific stocks picks for 2015. Until then, I wish my entire online community a joyful and prosperous New Year.

For more information, visit www.sunburstafruca.co.za or email info@atudandassociates.co.za follow me on twitter @vivianatud

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