AS A BLOODY battle rages at a major platinum mine in South Africa — the world’s biggest miner of the metal — investment managers on Friday talked up the crucial role of commodities such as platinum in investment portfolios.
Sovereign debt is beyond the danger zone of 90% of gross domestic product (GDP) in 10 major economies, with South Africa’s market in the direct firing line of global developments, as they immediately have an impact on commodity and currency prices.
The announcement of the closure of shafts at Lonmin, the world’s third-biggest platinum producer, quickly boosted platinum prices by 2%, yet the continuing global debt crisis, and slow Chinese growth has consistently pushed platinum prices down for six months.
Glenn Silverman, global chief investment officer at South Africa’s largest multi-manager, Investment Solutions, said on Friday that a financial repression was "in play", and investors would need hard assets and improved asset allocation in the future volatile environment .
Greece will exit the eurozone by the end of next year, he told an investment briefing on Friday, also expressing concern that a misallocation of capital was distorting capital markets, thereby "punishing" savers. "The promises can’t be met, so there will be defaults and the outcome is unlikely to be pleasant," he said.
John Mauldin, a well regarded global financial expert, said the world was in the "debt endgame, but not at the end".
"You need youngsters coming through to support the people retiring. But when young people are unemployed, they riot. We are seeing this around the world," said Mr Silverman.
These issues, however, were not yet properly priced into markets.
"Asset managers are only looking a year out. Most struggle with the slow-burn issues," Mr Silverman said.
Investment Solutions expected volatility to increase in a low-return environment as debt issues were not resolved in many countries, and there were very few safe havens left.
Jonathan Schiessl, head of equities at Ashburton, said any further policy loosening in China would be focused on liquidity measures and boosting investment, but from a commodity perspective he did not expect any easing in China to suddenly lead to a rise in commodity prices like those seen in 2008/9.
"Many commodity prices are pricing in a very bearish scenario. I don’t think they will fall, but also not roar away," he told Business Day.
This follows consumer inflation in China coming in at a stronger 1.8% in July and amid expectations that it could head even higher into the year end, due to rising food prices.
"The window for interest rate cuts in China is closing fast," he said.
Growth rates below 8% are seen as poor in Chinese GDP terms, and are causing jitters through global markets, South Africa included.
Mr Schiessl, however, said 8% shouldn’t be a surprise. His take is "China isn’t collapsing", though slow exports remain the major concern, but inflation could be as high as 3% by the end of the year.
Chris Hart, chief economist at Investment Solutions, said the surprise over the next five years could be inflation in Japan.
He said financial resources were needed in South African households, rather than governments or corporates, "so we don’t have these huge social inequalities".
Mr Hart was concerned about leadership and poor policy in government fuelling the problems.
"It is so important economies are accessible, but these problems are not being addressed — things like regulatory issues are not helping people get into markets, or we are taxing seeds and not harvests," said Mr Hart.
Mr Silverman saw the need for South Africans to save as crucial to economic growth.
"We have 30-year-low interest rates in South Africa. They must stop (cutting). We need savings," said Mr Silverman.
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