Cannon Asset Managers: Making cents of 2015 so far

By Cannon Asset Managers

Compiled by Samantha Pauwels & Rynel Moodley

Highlights

The year is off to a bumpy start as oil prices head to new lows with key producers showing no signs of cutting output in the face of a global supply glut. Brent hit its lowest level since 2009 this week and is down more than 50% from June, trading at $50.88 per barrel.

The fall in oil prices has delivered a late Christmas bonus for consumers as the price of 93-octane unleaded petrol dropped to its lowest level since August 2012, providing much needed relief to consumers facing a lean January. South Africa is one of the largest beneficiaries of lower oil prices as a $40 oil price could add as much as 1% to South Africa’s GDP, according to data from Oxford Economics.

Labour market conditions continue to improve in the US as jobless claims and layoffs reach a 17-year low. The backdrop of a strengthening job market could bring the Federal Reserve a step closer to raising its short-term interest rate, which it has kept near zero since December 2008.

Graph of the Week

The Mall, Not the Mine

For decades commodity prices have shaped Africa’s economic growth. The continent is home to a third of the planet’s mineral reserves, a tenth of the oil and it produces two-thirds of the diamonds. In previous cycles African economies have crashed when the prices of minerals, oil and other commodities have fallen.

The recent plunge in commodity prices has not been the kiss of death for the continent this time around, as currencies have held up far better than in the past. One reason currencies have been robust may be because economic growth is starting to come from other places. Manufacturing output on the continent is expanding as quickly as the rest of the economy, with growth in services expanding even faster.

There is still a long way to go. From the adjacent chart, one can see that Africa is still the continent most dependent on commodity exports; however, the “resource curse” is losing its power. With better education systems, investment in infrastructure and sensible regulatory reforms, the continent could completely break the spell that has held it back so often in the past.

Quote of the Week

“There are only a few things investors can do to counteract risk: diversify adequately, hedge when appropriate, and invest with a margin of safety. It is precisely because we do not and cannot know all the risks of an investment that we strive to invest at a discount. The bargain element helps to provide a cushion for when things go wrong.” ~ Seth Klarman

Commentary

Look out Oprah, there’s a new book club on the rise. Facebook founder Mark Zuckerberg has declared 2015 the “Year of Books” and invited Facebook users to join him with the aim of getting through a new book every two weeks while discussing it on Facebook. The intention is to focus on books that have an emphasis on learning about different cultures, beliefs, histories and technologies. His first book choice is Moises Naim’s “The End of Power” which explores the changing nature of power. Paperback copies of the book sold out on Amazon within a day after Zuckerberg’s post. ~ Source: Finweek

Cannon Media

For a better understanding of the investment challenges in 2015, take a look at an article recently published by our Chief Investment Officer, Dr Adrian Saville: https://www.biznews.com/sa-investing/2015/01/08/adrian-saville-2015-forecast-tough-better-2014/