Quote from Cygnus Atratus:
-Look up spreads on South African debt
-Consider a housing boom that rocketed c460% in 9 years (read up on parabolic price moves)
-Recent carry trade currency status (EPFR Global did a great study on it)
-Double digit inflation
-Speculative money outflows, particularly hedge funds (typical of most commodity producers countries in last 7 months)
-Masses and masses of under/unemployed young people (42%)
-Add in a likely populist government a.k.a Jacob Zuma for 5 years
-Not to mention decline in Platinum & Gold prices
Its what university educated people and fancy fund magers call Mosaic Theory. You look at eclectic mix of data to formulate a hypothesis and proceed to SHAFT your target stock,commodity,currency or country.
DISCLOSURE: Long USD/ZAR since May, thats gone parabolic too, maybe should close out position
Good points, but certainly do not point to defaulting on debt. Have you actually looked at all SA debt levels, you will also be surprised o know that SA runs a budget surplus which is a controversial topic as many belive that they should be running a budget deficit because of the poverty levels.
A number of your variables will not have an effect on SA crashing, due to structural issues caused by apartheid.
1. The property boom was more a result of blacks now being able to affor d housing that they couldnt affor under apartheid. They didnt have a house before. The purchases were mainly for domiclium and not to rent out, as a result you dont have multiple home ownership amongst most. You also do not have the mortgages cut up and traded otc.
2. South Africa operates at full employent. The high employment rate is due to structural unemployment caused by the effects of apartheid whereby the market is flooded with unskilled labour and because blacks were denied education there is not enough skilled labour to fill the vacant skilled positions. The country survived with these unemployment levels during aparttheid because the white population carried the economy which they still do, therefor this point is moot. The employment rate is actuall at around 28% since informal employment has been factored in.
3. The ANC government decides policy and the president executes it......therefore there wwill be no crises unde JZ, a sentiment echoed by the international finance industry.
4. Inflation is historically always at the high point especially in emerging market economies, but the current rate is also not an issue especially with intrest rates being so high.
5. The depreciation of the rand is not due to rand weakness or dollar strengh but due to panic and risk aversion, when the dust settles u will get a quick reallignment.
6. Yes, there is a decline in plat and gold prices but remember that SA companies sell the gold & plat in dollars, therefore with the rand weakening it helps offset the price drop.
I think its silly to say that SA is facing a default.
