From Gareth Stokes, MoneyMorning, Editor
 
Dear Money Morning reader,
 
Are you a glass half empty, or glass half full kind of person? This oft-used English expression is supposed to get you thinking about whether you’re optimistic or pessimistic about a certain  proposition. If you look at the equity markets and position yourself as a ‘glass half full’ person then you’re expecting good things from 2010. The problem with market commentators is they gyrate between ‘half full’ and ‘half empty’ as often as the wind changes directions.

Take the following headline (Business Day, 23 February 2010) as an example. It makes a positive start with Economic recovery gaining traction to get everyone thinking happy thoughts… The article centres on the Reserve Bank’s December 2009 leading economic indicator – up for the fifth consecutive month – and the latest corporate failure statistics from Statistics SA. The economy grew 3.1% in Q4 2009, and will hopefully expand by 2.3% or more in 2010. But before you give in to feelings of euphoria the ‘half empty’ subhead unleashes its counter offensive. But economists warn consumer demand is crucial to boost the rebound!

South Africa Inc, just like most West-leaning emerging economies, is heavily dependent on its consumers for growth. Up to two thirds of the country’s economic activity is directly attributed to consumers. So forget the glass – if you want to know what lies in wait for the local economy – you need to ask how full the shopping cart is! The promising turnaround in GDP in the second half of 2010 is “driven mainly by global demand for local exports and restocking of inventories,” writes Mariam Isa in the ensuing article.

But consumers remain on the sidelines.

Consumers are still struggling with debt accumulated during the ‘boom times’ early in the new Millennium.

Mortgage and other debt repayment is whittling away disposable income, administered prices are ballooning at rates well in excess of inflation and close to a million jobs were lost last year. The National Energy Regulator has allowed Eskom to inflate its prices by 25%. So consumers will also pay a lot more for electricity next year. The National Credit Regulators’ September 2009 report into the standing of credit consumers is telling. Less than half (41.2%) of consumer accounts are current, with 13.9% in arrears between one and two months, 17% in arrears for more than three months, and the balance either in adverse listing or judgement and administration stages. The situation is frightening!

When consumers go to the wall, retail banks suffer. Their incomes have been severely hindered by impairments across lending activities. Vehicle loans, home loans, credit cards – you name it – the banks have taken a hit on it. The National Credit Act also means the banks haven’t yet disclosed details of creditors who are under debt review, so there could be more surprises in store for shareholders. Absa – the first of the ‘big four’ to report FY 2009 results – confirmed this pressure with a 25.5% decline in headline earnings per share.

No wonder local asset managers are more bullish on offshore equities this year. They’d rather consider investing in the doormat of the global investment world – Japan – than risking it all on a domestic long-only strategy.

Turning to the markets...

The JSE all share index slumped 0.12% Friday. The gold mining index gained 1.08%. Resources added 0.24%. Banks and financials grew 0.72% and 0.39% respectively. Industrials pulled back 0.36% and the platinum mining index jumped 2.79%.

London's FTSE100 climbed 1.45%. The Dow Jones traded flat, up 0.04% and the Nasdaq closed up 0.18%.

Tokyo's Nikkei gained 0.76%. Hong Kong's Hang Seng added 1.9%.

Brent crude is currently trading at $78.16 per barrel.

Spot gold's trading at $1,118.12 and platinum was last quoted at $1,544.00.

And here's how the rand is performing against the major currencies:
R/$7.70
R/₤11.67
R/€10.48