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The Economic Environment and Investments
Presented by:Dawie Roodt13 July 2006
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Real Economy
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GDP
GDP
-3
-2
-1
0
1
2
3
4
5
6
7
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
%
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GDP
GDP per capita '00
20000
20500
21000
21500
22000
22500
23000
23500
24000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
R
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Fiscal Policy
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State Finances
Revenue/Expenditure:GDP
20
21
22
23
24
25
26
27
28
29
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
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State Finances
Deficit:GDP
-8
-7
-6
-5
-4
-3
-2
-1
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
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State Finances
Government Debt:GDP
25
30
35
40
45
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
Debt trapRecovery
Normal Normal
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Results
Lower interest payments More social expenditure Better ratings Strong demand
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Monetary Policy
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Interest rates
Prime
9
11
13
15
17
19
21
23
25
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
%
De Kock
Stals
Mboweni
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Interest rates
Prime
10.00
10.25
10.50
10.75
11.00
11.25
11.50
11.75
12.00
12.25
Jan-04 Jan-05 Jan-06 Jan-07
%
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Inflation
CPI
0
3
6
9
12
15
18
21
Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
%
14.619.91%
5.15%
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Inflation
CPIX
2
3
4
5
6
7
Jan-04 Jan-05 Jan-06 Jan-07
%
4.5%
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Exchange rates
R/$ and R/Euro
5
6
7
8
9
10
11
12
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Rand
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PPP Cycle (R vs. USA$)/Big Mac
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07
%
Rand Valuation
Gold $800
Rubicon
Stock exchange crash
ANC, Reds fall
Election Exchange controls
Asian
crises
Wakefordgate
Rus, Zim, Arg
Fin Rand
NOFP + NOFP -
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Financial
Private Sector Credit Extension
8
10
12
14
16
18
20
22
24
26
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
%
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Disposable income of households
Change in disposable income of households
-4
-2
0
2
4
6
8
10
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
%
Source: SARB
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Household debt to disposable income
Household debt to disposable income of households
30
35
40
45
50
55
60
65
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
%
Source: SARB
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Savings to disposable income of households
Ratio of saving by households to disposable income of households
0
2
4
6
8
10
12
14
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
%
Source: SARB
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Debt Servicing Cost
Debt payment cost % of disposable income
0
2
4
6
8
10
12
14
16
Q1 94 Q1 95 Q1 96 Q1 97 Q1 98 Q1 99 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05
%
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Commodity Prices
Gauteng Pump price (cents) and Brent Crude Oil Price ($ per barrel)
0
100
200
300
400
500
600
700
Jan-00 Jan-02 Jan-04 Jan-060
10
20
30
40
50
60
70
80 $Cent
s
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Commodity Prices
Gold Price: Rand and Dollar (spot per ounce)
500
1000
1500
2000
2500
3000
3500
4000
4500
Jan-00 Jan-02 Jan-04 Jan-06
Rand
0
100
200
300
400
500
600
700 $
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Balance of Payments
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Balance of Payments
Current Account vs Financial Account
-8
-6
-4
-2
0
2
4
6
8
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
% GDPBarclays/Absa
De Beers delisting
Sanctions liftedDebt Standstill
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Balance of Payments
Balance on Current Account to GDP
-7
-6
-5
-4
-3
-2
-1
0
1
2
Q1 94 Q1 95 Q1 96 Q1 97 Q1 98 Q1 99 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06
%
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Results
Interest rates climbing Inflation jumps slightly Large current account deficit Commodity prices – effect on businesses and inflation outlook Currency exposed to global volatility Alarming increase in PSCE Stellar household debt/disposable income Lack of ‘savings culture’ by households
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SA Business Cycle
Business cycle phases in SA since 1980 and GDP
-3
-2
-1
0
1
2
3
4
5
6
7
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
%44 19 35 51 42 33 82+15 21 (months)
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SA Business Cycle
Business cycle phases in SA since 1980 and the All Share index
0
3000
6000
9000
12000
15000
18000
21000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
points44 19 35 51 42 33 82+15 21 (months)
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SA Business Cycle
Longest upwards phase on record (Sept ’99 - ?) Business cycle phases since 1945 (Post war):
Upward phases (15) Duration in months: 441
Downward phases (14) Duration in months: 285
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Comparison 2003 -2005
Total increase in: 2003 - 2005
-30-20-10
0102030405060708090
100110120
%
House Prices (nom.) R/$ Alsi 40 R153 Bond(price) CPI (index)
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Comparison 2003 -2005
Bonds Equity Property Cash Rand
Expected Return
Risk ? Liquidity Cost
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Asset Allocation
Reason
Equities Demand/Rand/International
Bonds Inflation/Supply
Cash Short Interest rates
Property Property Cycle
– Heavy Overweight
– Overweight
– Neutral
– Underweight
– Heavy Underweight
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Local Equities, 2006Economic Sector MC EAA JSE Sector
Mining and Quarrying 32 34% Mining, Platinum, Gold, Coal
Finance, prop and bus. serv 30 24%Banks, Insurance, Life Ass, Media & Pht, IT, Property, Support Serv
Manufacturing 12 14%Auto, Basic Ind, Beverages, Chem, Elect, IT Hard, Pharm & Bio, Steel & Other
Personal Service 6 5%Cyc Serv, Health, Leisure Ent, Non-cyc Serv, Person Care
Transport, storage and comm. 6 7% Telecomm, Transport
Trade, hotels and restaurants 6 4%Cyc Cons, Food & Drug, Gen Retail, House Goods, Non-cyc Cons
Electricity, gas and water 4 3% Oil & Gas
Agri, Forestry and Fishing 3 1% Food Prod
Construction 2 8% Const & Build
100 100%
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