In this article, we will review the latest economic data for South Africa and discuss some of its implications as it relates to the outlook for the country's financial assets, including the MSCI iShares South Africa exchange-traded fund (NYSEARCA:EZA). More importantly in the final part of this article, we will detail what we consider a reasonable downside target for the currency, based on the assumption that the global liquidity backdrop (specifically $ liquidity) will continue to tighten further over the next 12 to 18 months. https://seekingalpha.com/article/4208663-south-africa-fair-value-rand-world-normalized-interest-rates?source=all_articles_title
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One of the conundrums of the current economic expansion in the United States has been the tepid wage growth evident in the recovery thus far. Although wage growth has picked up somewhat over the past year, it remains in a band between 2.5% and 3% and below the levels of wage growth seen prior to the last recession in 2007. This conundrum is all the more perplexing, given that the official unemployment rate has continued to decline to a new cycle low of 4.4%.
US equity markets have rallied strongly since the election of Donald Trump as the 45th president of the United States, with investors largely choosing to focus on the prospective positive aspects of his administration and the scope for large corporate tax cuts, as well as a reduction in regulation. However, as we have detailed in previous articles, given Trump’s apparent protectionist instincts and anti-immigration views, there are also potential negative aspects associated with his presidency- which, broadly speaking, financial markets have chosen to ignore.
What does the future hold for traditional banks?
The rise of new technologies has allowed for improved mobile connectivity, cloud computing and the 'Bitcoin' phenomenon. This has led to an increasingly negative narrative with regard to the future of existing traditional banks. Newer entrants into the financial services realm such as Paypal and Square are seen as potentially successful 'disruptors' of an industry facing increased scrutiny and regulatory zeal. Venture capital companies are clamoring to invest in new peer-to-peer lending schemes, with many seeing this as the future for lending into the next decade and beyond.
How stressed are South African households at present?
Despite the poor economic backdrop and the recent increase in interest rates, South African households generally still appear to be in reasonably healthy shape, particularly middle to high-income households. Elevated wage and salary growth and waning demand for credit have helped keep nominal growth in disposable incomes above the growth in household indebtedness since the last recession in 2008/9.
Chinese Private Sector Credit GrowthChinese private sector credit growth or loans extended by the Chinese financial system to businesses and households accelerated to 15.3% y/y in January from 14.3% y/y in December. This is the highest rate of credit growth recorded since early 2013 and provides another indication that a “hard landing” in the Chinese economy is an unlikely scenario for 2016.