Local markets have support - Investec

From Business Report
October 17 2007

Emerging markets like South Africa will continue to offer good returns, powered by demand from Asia for resources, despite recent global economic tremors, Investec Asset Management said on Wednesday.

Jeremy Gardiner, a director at Investec unit Investec Asset Management, told reporters that a global credit squeeze triggered by defaults on US mortgage debt has so far not contaminated developing economies as is traditionally the case.

"Emerging markets have remained strong in comparison, despite the subprime (mortgage) crisis. Though still subject to contagion, the fact that they haven't been affected yet illustrates the strength of their respective economies," Gardiner said.

Demand from China and India in particular will continue to drive growth particularly in regions such as South Africa which offers many of the resources needed by these countries.

Gardiner said strong consumer spending growth in South Africa is slowing.

"But the good news is that we are probably at the peak of our interest rate cycle, and a declining interest rate environment in 2008 should give growth a tail wind," he said.

South Africa's central bank has hiked interest rates by 3.5 percentage points since June 2006 in a bid to contain inflation, repeatedly warning household spending is too high.

Gardiner added growth would be fuelled by the corporate sector and the government, saying the equities market has underestimated the boost to economic growth and earnings from the government's R200-billion ($29.34-billion) infrastructure programme over the next three years.

The local bourse has powered to record highs, seeing a growth of 22.8 percent this year up to September 30.

"In addition, on a forward PE of 13.2, the South African equity market is reasonably priced," said Gardiner.