8 October 2008
South Africa’s financial markets have handled the turmoil in global markets better than those in most other developing nations, with the local bourse dropping by seven percent on Monday, as opposed to markets in other developing nations sliding an average of 10%.
Econometrix Treasury Management economist Russell Lamberti told BuaNews this week that despite the perception that local markets were on the brink of collapse, the economy was handling the situation far better than expected.
In addition, he added that currencies of other developing markets, like Turkey and Brazil, saw far greater weakening than the South African rand.
“The Australian dollar was actually the hardest hit on Monday, losing more than the rand, so in comparison we’re not doing that badly,” Lamberti said. “We’re holding up somewhat better, with the rand acting as a shock absorber.”
SA consumers ‘in a much better position’
While many doomsayers have witnessed the recent JSE 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 was not doing all too badly.
Despite a high inflationary environment currently, with annual inflation in August hitting 13.6%, South African consumers were 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,” he said. “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.”
Investec Asset Management strategist Michael Power agreed with those views, saying that South Africa’s banking industry had exercised great caution in their lending practices, more so than their foreign counterparts.
“We have four large borrowing banks … [that] have conducted their business in the most responsible manner,” he said. “Our banks did not get up to the tricks that other banks [in the US] did.”