With lower GDP forecasts and higher debt levels the SA environment is not conducive for long-term investors, writes Pieter Koekemoer
With lower GDP forecasts and higher debt levels the SA environment is not conducive for long-term investorsThe environment facing long-term investors is treacherous. We are in uncharted waters for our generation.
At the same time, unlike the experience in previous pandemics Covid-19 targets the economically inactive more than those seeking work, meaning labour availability is unaffected. A decline in asset values and increased market volatility create a negative wealth effect, making households less confident and less likely to consume.
Monetary policy is extraordinarily loose. The US Federal Reserve increased its balance sheet by 70%, or $3-trillion, in three months, with forecasts of another $4-trillion to $5-trillion of asset purchases over the next year. Nearly all advanced economies have similar asset purchase programmes and the bond buying strategy is increasingly being used elsewhere too.
Unfortunately, there are headwinds that will make it much harder to repeat this outcome. Globalisation, the engine of low prices and rapid growth over the past three decades, is in reverse gear. This is partly due to geopolitics, with increasing tension levels between the great powers.The level of international co-ordination is already significantly lower in this crisis than during the global financial crisis a decade ago. This is compounded by a change in risk appetite.
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