Nam$ losing strength

WHILE a moderation in economic growth is expected, a major global slump is unlikely in the short to medium term, provided that energy prices stabilise at current levels and global central banks do not become overly aggressive.

This was said by Johannes !Gawaxab, Managing Director of Old Mutual’s African Operations, when commenting on the recent market turmoil. The recent volatility hit share markets and the Namibia dollar dropped sharply against major currencies as speculators panicked out of emerging markets.The Namibian (NSX Overall) and the South African (JSE ALSi) equity markets have wiped out almost all gains since the beginning of this year and are currently trading at January levels.The Namibia dollar has lost more than six per cent against the US dollar since January and depreciated by 13 per cent against the British pound during the same period.The Bank of Namibia recently increased the Bank rate by 50 basis points from seven per cent to 7,5 per cent.The hike was a result of higher inflation forecast, mixed performance of the real economy, strong growth in money supply and credit extension, energy prices as well as global uncertainties and the impact thereof on the Namibian economy.!Gawaxab says Namibia is experiencing a market event like 1987 – markets rising on leveraged buying then selling off sharply on fears of a recession, without one occurring.He contends the recent market correction is either mainly technical -a result of excess leverage unwinding – or fundamental and a precursor to an emerging market collapse as in 1998.Global economic as well as geopolitical developments do have an increasing impact on the fortunes of the Namibian economy.The tightening US monetary policy, slow-down in the US economy, concerns about overheating in China, mounting inflationary pressures in Europe and Japan and volatile energy prices pose significant risks to financial markets.!Gawaxab says concerns over the health of the US economy have risen after several Federal Reserve officials commented on inflationary pressures and higher interest rates.Federal Reserve Chairman Ben Bernanke said the US economy was entering a “period of transition”.As the US slows, other countries, notably Japan and Europe, will pick up some of the slack.”Going forward, international crude oil prices and the Namibia dollar will be key determinants of inflation,” !Gawaxab predicted.The expectation is that if oil prices remain above US$70 (N$476) a barrel, the Namibia dollar could depreciate to as much as N$7,50 to the US dollar.Although positive for Namibian exporters and the Balance of Payments, the weakening of the currency to these levels poses profound inflationary challenges.The strong run in equities during the past five months was unsustainable and investment return expectations should be lowered, while we can expect more volatility from the share markets.Said !Gawaxab: “We remain positive on equities and quoted property despite the current turbulence, while expecting cash and bonds to provide limited returns.A positive macro-economic environment should continue to support company earnings growth, while property remains a good diversifier in any portfolio that provides stable income growth with little volatility.Property as an asset class is expected to outperform bonds and cash in the medium term”.The recent volatility hit share markets and the Namibia dollar dropped sharply against major currencies as speculators panicked out of emerging markets.The Namibian (NSX Overall) and the South African (JSE ALSi) equity markets have wiped out almost all gains since the beginning of this year and are currently trading at January levels.The Namibia dollar has lost more than six per cent against the US dollar since January and depreciated by 13 per cent against the British pound during the same period.The Bank of Namibia recently increased the Bank rate by 50 basis points from seven per cent to 7,5 per cent.The hike was a result of higher inflation forecast, mixed performance of the real economy, strong growth in money supply and credit extension, energy prices as well as global uncertainties and the impact thereof on the Namibian economy.!Gawaxab says Namibia is experiencing a market event like 1987 – markets rising on leveraged buying then selling off sharply on fears of a recession, without one occurring.He contends the recent market correction is either mainly technical -a result of excess leverage unwinding – or fundamental and a precursor to an emerging market collapse as in 1998.Global economic as well as geopolitical developments do have an increasing impact on the fortunes of the Namibian economy.The tightening US monetary policy, slow-down in the US economy, concerns about overheating in China, mounting inflationary pressures in Europe and Japan and volatile energy prices pose significant risks to financial markets.!Gawaxab says concerns over the health of the US economy have risen after several Federal Reserve officials commented on inflationary pressures and higher interest rates.Federal Reserve Chairman Ben Bernanke said the US economy was entering a “period of transition”.As the US slows, other countries, notably Japan and Europe, will pick up some of the slack.”Going forward, international crude oil prices and the Namibia dollar will be key determinants of inflation,” !Gawaxab predicted.The expectation is that if oil prices remain above US$70 (N$476) a barrel, the Namibia dollar could depreciate to as much as N$7,50 to the US dollar.Although positive for Namibian exporters and the Balance of Payments, the weakening of the currency to these levels poses profound inflationary challenges.The strong run in equities during the past five months was unsustainable and investment return expectations should be lowered, while we can expect more volatility from the share markets.Said !Gawaxab: “We remain positive on equities and quoted property despite the current turbulence, while expecting cash and bonds to provide limited returns.A positive macro-economic environment should continue to support company earnings growth, while property remains a good diversifier in any portfolio that provides stable income growth with little volatility.Property as an asset class is expected to outperform bonds and cash in the medium term”.