October tends to be a nervy month for markets and investors. This is understandable as 29 October this year was the 85 anniversary of the Great Wall Street crash of 1929! Whilst not quite as dramatic October has also seen other severe downturns , for example the panic of 1907 and 1987’s black Monday. Actually, down the years September has been nearly as prominent for sudden corrections in markets so perhaps we shouldn’t be so nervous when October comes around.
Nevertheless, nervousness and volatility has been a feature of this September and October. Global markets have corrected up to 10% but have since stabilised. The biggest concerns have centred around the economic stagnation in Europe, except the UK, with the worrying prospect of deflation, and the slowdown in China which has affected the demand for commodities. Australia in particular is feeling the pinch regarding the latter.
The real bright spots, which offer hope for growth in the foreseeable future, are the US and Africa. However, with the US Federal Reserve announcing the end of Quantitative Easing and the prospect of the gradual normalisation of interest rates, markets, particularly those in the emerging world, continue to be somewhat nervously volatile.
We now live in a world of both order and disorder, as New York Times columnist Tom Friedman and foreign affairs specialist Richard Haass have pointed out. It is a world where we might expect lower growth and consequently lower returns on investments.
In the case of Africa and despite some “disorder”, the prospects for real growth are encouraging. In theory, at least, South Africa is well placed to take advantage of the economic boom which may well continue into the foreseeable future. Unfortunately, SA’s growth is predicted to be 1.4% over the next year which is way below what should be expected and indeed required to ameliorate the serious problems of unemployment and inequality. Labour issues and the uncertainty of electricity supply are just two of the issues which have held this country back. Now, as finance minister Nene articulated in his recent Medium Term Budget Policy Statement, the country is rapidly running out of money. South Africa is living beyond its means. Government expenditure will have to be drastically cut and there may well have to be an increase in taxes. The blueprint for a sustainable economic growth path is outlined in the much vaunted National Development Plan but can this ever be fully implemented whilst the ANC government remains in alliance with its leftist partners? As economist Dawie Roodt recently commented, unfortunately our government is “ideologically confused”!