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12 February 2016, Newsflash


12 February 2016

“Darkest Before Dawn” with regards to Emerging Markets

According to Stanlib the recent dollar weakening may be a start of the bigger move.  Well, let us hope so because the dollar is too strong for the US economy (hurting exports and manufacturing) and for the emerging market currencies like ours.  So further dollar weakness would be overall a positive for the global economy.

Alex Redman of Credit Suisse is quite bullish on Emerging Market equities and currencies for 2016.  His view is that it is “darkest before dawn” with regards to EM.  He also adds that SA is a serial January underperformer.  61% of the time over the past 23 years, SA has underperformed in January; so this year’s -2% year-to-date underperformance is quite normal market behaviour.

Stanlib believes that the recent stock market correction of the developed markets might not yet be over.  For the current correction, down some -26% now.

The US market analyst, Elaine Garzarelli says large S&P 500 corrections are a normal part of every “secular bull market” and range from approximately -10% to -20%.  The correction in 2011 (Greek crises) was a bit over -19%.  A bear market (over -20%) is usually associated with a recession, an inverted yield curve (short rates higher than long rates) and very poor earnings (down big year-on-year). 

According to Garzarelli, none of these events are likely, based on her models.  However, because of a likely slowdown in US growth over the next 3 to 6 months, she has changed her sector weightings.  China’s slowdown is causing the US economic expansion to moderate somewhat, but is unlikely to cause a US recession.

Friendly greeting 

Andre Delport

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