The Good News You’re Missing

– Sunel Veldtman

 

Recently, I have noticed how many conversations about the world lead to a conclusion that the world is a mess. We seem anxious and insecure about the future. If I look at my social media feed, it is no wonder. Bad news abounds. Korea is angling for war. Trump plans to block immigration. Europe’s migrant crisis isn’t over. After Brexit, the UK will never be the same.

While all the bad news dominated headlines, global markets have been reaching all time highs.In fact, an investment in a developed equity index would have returned around 17% in US Dollars over the past year.

Somewhere there is a disconnect. The truth is, the numbers show that the world is not a mess. At least not economically speaking. All the major economic centres are growing at a reasonable and sustainable pace.

Let’s look at some numbers.

  • In Europe, economic sentiment is high and rising. Retail sales are strong and on the up.
  • German business confidence is at record levels.
  • European growth has been revised upwards to the highest level in two years.
Euro-area Retail Sales Source: Stanlib & Keving Lings

 

German IFO business climate index. Source: Stanlib & Keving Lings

 

In China, consumer confidence is the highest ever:

  • The Chinese government has succeeded in spurring the Chinese to spend.
  • In addition, manufacturing is growing, not at previous record rates but still growing.
  • Economic growth remains high at 6.9% in the second quarter.
  • Even if you question the official growth number, other indicators like electricity consumption shows a healthy upswing in economic activity.
China consumer confidence.
China: Growth in electricity consumption
China: PMI index (manufacturing vs services)

 

In the US, consumer confidence now exceeds levels prior to the 2007 financial crises:

  • US employment is at record levels – US business creates around 150 000 to 200 000 new jobs a month! In fact, US unemployment is at 4.3% and has shown a steady decline for the past ten years.

 

United States consumer confidence

 

Despite Trump’s attempt to claim credit for this, unemployment has been declining right through the Obama terms.

 

While the mainstream media has nothing good to say about Trump (and we love to criticise him), business seem to love him. Business confidence has shown a remarkable recovery since his election because Trump promised tax cuts and less regulation. Even industrial production and exports have picked up over the past year.

United States small business confidence index (NFIB)

 

United States monthly growth in exports

 

Monthly net job gains

 

There is nothing on the horison to indicate that this economic growth rate is not sustainable. Inflation remains low and there is plenty of economic capacity to absorb the growth.

To steal a phrase from a famous movie, “this is as good as it gets”.

In South Africa, there is plenty to be negative about. The government’s policies have resulted in business confidence reaching a 30 year low. However, even in the current negative environment, we are missing the good news.

Here goes:

  • This year’s maize crop will be the largest ever. Already economic growth has turned around because the drought has been broken.
  • Inflation is low and falling making room for interest rates to fall.
  • Exports have picked up and the trade balance is healthy.
  • As an open economy, South Africa is benefitting from the favourable global environment.

 

We are not trying to paint a rosy picture. There are challenges, particularly in South Africa and there are risks like the North Korean situation.

However, the kind of overriding pessimism that seems to draw us all into a black hole, is not justified. And it’s not good for our investments. People are wary about investing money, choosing to ‘sit on the sidelines until things feel better.’ That day is unlikely to arrive again. It seems social media has changed that world forever – the world is likely to stay an anxious place. We have to look for the realistic picture, not get sucked in by the negative.

Even if you are pessimistic about South Africa, there are plenty of reasons to feel good about the world and even more so to invest for the long-term through global investments. Don’t let your investments suffer because of the world’s angst.

Acknowledgement for content from a presentation by Kevin Lings, Stanlib Economist.

 

Foundation Family Wealth is an Authorised Financial Services Provider

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