SA markets faring better than other developing countries

Economist at Econometric Treasury Management (ETM), Russell Lamberti told BuaNews on Tuesday that despite the perception that local markets are on the brink of collapse, the economy is handling the situation far better than was expected.

The local currencies of other developing markets like Turkey and Brazil saw greater weakening than the South African Rand, he said.

“The Australian Dollar was actually the hardest hit on Monday losing more than the Rand, so in comparison we're not doing that badly. Emerging markets fell 10% on Monday, while we fell 7%. We're holding up somewhat better with the rand acting a shock absorber,” Lamberti said.

While many doomsayers have witnessed the recent All Share Index drop to recent all time lows as the beginning of a local market collapse, Lamberti explained that among developing countries, South Africa's not doing all too badly.

Despite a high inflationary environment currently with annual inflation in August hitting 13.6%, South African consumers are still in a much better position than their American counterparts.

“South Africa's banks are properly capitalised and are in pretty good shape. Our credit policies have always been rather strict.

“The price of property in South Africa has remained pretty flat for the past year, but if it drops by another 10 to 15% in the future we could see our own credit crunch in South Africa,” he highlighted.

Strategist at Investec Asset Management, Michael Power agreed, saying South Africa's banking industry has exercised great caution in their lending practices, more so than their foreign counterparts.

“We have four large borrowing banks. I use the word ‘boring' in the most affectionate way as they have conducted their business in the most responsible manner.

“Our banks did not get up to the tricks that other banks [in the US] did,” said Power.

The strategist believes, however, that South Africa is performing no better or no worse than other emerging economies with the All Share on Wednesday down 3.4%, and with the Rand taking a further knock to R9.20 to the Dollar.

Power told BuaNews that the Rand has played an important role acting as a shock-absorber for global economic shifts cushioning the affects on South Africa's real economy.

Article published courtesy of BuaNews