2009 in a crystal ball

1/21/2009 11:39:59 AM

It is almost the end of January already and we still do have little comfort in the future or do we? 12 months ago the stock market’s bottom fell out and we all scurried for cover. Revisiting our investment policies and philosophies was at the order of the day but the more we changed the worse it looked – property, stock market, preference shares, money markets, etc. always to late to beat the downward spiral. So that was 2008!

Looking forwards at 2009 the question we all have is where to go from here – our overweight positions need to be revisited so that we are ready for the “near” future. Would the world markets leading by new US President Obama, lower oil prices, fears of (worsening) recessions and deflations be able to get out of its pessimism and show a willingness and not only a need to recover?

Yes we can.. And why not!

The one sure thing is change and we will have to adapt to the changes and challenges. Although the US is officially in a recession we do not see SA to experience the same. At least not on the same scale, Mr. Manual made sure of that with his solid monitory policies backed by Mr. Mboweni and his inflation targeting (depending on your school of thought) We believe that the SA economy will still be in the positive in 2009 with an economic growth rate of between 3% and 3, 6%. Why do we say that?

Firstly, we are not in negative territory at this point in time. It is often seen that an economy with negative growth spirals even further into negative territory mainly due to fear and sentiment in the market.

Secondly, our inflation is in a downward cycle and this is because of amongst others, lower oil prices and this has a positive effect throughout our economy as commodity and food price inflation rises much slower than before. We believe that our official inflation rate will come down from the current 12% with 3% to 5%, leaving Mr. Mboweni’s target, well within reach before the end of the 4Q of 2009. Historically interest rates move in the same direction as inflation and we are of the opinion that the SARB will continue to reduce the repo rate in February 2009 with another 50 basis points – probable overall reduction of 2% - 3% by the end of 2009. Lower interest rates are necessary to boost consumer spending and this will in turn stimulate economic growth.

Thirdly, the capital investment by private and government sectors in lieu of the soccer world cup will give our economy a soft landing and will form a buffer between the situation in the US and Europe and the effects of a recession on our economy.

So what does the crystal ball say about the property market? We believe that the market will remain under pressure up to at least the 3rdQ of 2009 before really lifting its head again. By that time affordability would have improved due to lower interest rates. However bank credit criteria will remain conservative and is here to stay as their margins has taken a huge knock due to the current situation. Banks will focus on quality mortgages instead of market share. Having said that, it is always a good time to buy now but concentrate on value and a well weighted portfolio - diversification is the key word. More than 80% of properties sold today are less than the asking price and the average time on the market is more than 5 months (Source FNB Property Barometer).

In conclusion we belief that the negative market sentiment we have experienced of late will subside as soon as January 2009. Unfortunately many business cash flows will be under pressure in 2009 in the manifestation of business concluded in 2008 but at least we know what to expect. 2009 will give us the opportunity to lay a solid foundation to enjoy the spoils in 2010.............

Let us improve on what we accomplished last year, let us become assets in our family and work environments, let us broaden our horizons, expand our minds, share our knowledge with others. Let us work hard at becoming multi-skilled, and grow to our full potentials. Let’s see everyone develop their skills and ability, and be able to celebrate their success in doing this when 2009 draws to a close...