September 2003 saw the meeting of the G7 finance heads held in Dubai. This was an important meeting and to some extent can be compared to the 1985 meeting of G7 at the Plaza Hotel, where a weaker US dollar was called for after continued strength. The Economist however says that the Dubai statement was certainly not another Plaza Accord.
According to Stephen Roach, chief economist at Morgan Stanley, the global imbalance in the world's economies persists and requires fixing. The fact that this issue has now taken centre stage underlines its importance. But any reversal of the massive imbalances is going to be painful and indeed politically difficult, hence the increased call from various quarters for US trade protectionism.
I also refer to comments made by Jim Rogers and Bill Gross. Rogers remains unimpressed with US based equity investments, preferring commodities, while US bond guru emphasised that the currency/bonds/stocks of a reflating economy engaged in guns and butter spending of near historical proportions are bad investments.
While we have seen a strong rally in dollar terms on the US markets with the S&P500 index up 14,4% and the Nasdaq up an impressive 36,6% this year, the rand has appreciated 18%. As I write, the rand has broken through the R7/dollar level on the back of the very weak US dollar.
Yes, I like local equities given the fair values that they are trading at, but two risks stand out for me in the short term. The first is a potential decline in the US markets because they are back at "nosebleed" levels and secondly the extent to which the firm rand needs to be factored into valuations of especially resources.
For the detailed Market Focus newsletter, please Click here......
If you would like specific investment advice, please don't hesitate to contact me.
Sincerely
Ian de Lange CA (SA)
021 710 5700
Posted: 2003/09/30 16:10 View Archive