A DEAL will be found to avert the fiscal cliff in the US and its negative effect on growth, says MIG Bank of Switzerland chief economist and former World Bank economist Luciano Jannelli.
Such an outcome will ease the fears of South African investors that a fiscal cliff will damage the value of their local portfolios.
Fund managers in South Africa have been repositioning portfolios ahead of potential tax hikes and public spending cuts in the US, dubbed a fiscal cliff.
It could mean US fiscal policy will be tightened by up to 4% of gross domestic product unless Congress agrees to avert the risk.
South African equities are most at risk to the fiscal cliff as it could usher in slower growth in South Africa and other emerging markets. This has led to some funds in South Africa reweighting their offshore holdings upwards and reducing their South African stock exposure.
"We favour further sideways moves for the US dollar as we believe that the weakening effect of the Federal Reserve’s quantitative easing will be compensated by improving US growth prospects," Mr Jannelli told Business Day on Wednesday.
The latest stimulus plan has seen the Federal Reserve buying $40bn of mortgage debt a month on top of the more than $2-trillion worth of Treasury and home loan securities bought since the financial crisis began in 2008.
The rand came under a little pressure on Wednesday as continuing European debt concerns plagued perceptions and the chances of a European recovery.
Europe is a key trading partner for SA but there are concerns that Spain cannot meet its budget target, despite the more upbeat news on Greek debt this week.
International brokerage house Trader24’s head of broker services, Ricky Fox, believes the rand looks set to improve on the currency performance rankings next year.
"The value of the rand should increase as metal prices look to appreciate, and the possibility of further global stimulus could result in a greater demand for emerging market bonds," Mr Fox said in an interview ahead of the SA Forex Expo 2012, taking place on Friday and on Saturday in Cape Town.
Positive expectations of a Greek debt buyback with a face value of €30bn had seen some positive sentiment filtering in for the euro on Wednesday, but it started stuttering later on in the day.
The Swiss franc is often used as a proxy by traders and investors to gauge volatility in currency markets and long-term outlooks for debt markets, but in September last year the Swiss National Bank (SNB) caught many by surprise when it intervened to weaken the franc.
It said the currency’s overvaluation posed an acute threat to the economy, and enforced a minimum threshold of Sf1.20 to the euro.
"The 1.20 minimum threshold is expected to hold in the foreseeable future," said Mr Jannelli. "Indeed, the SNB’s utmost determination and the European Central Bank’s pledge to provide ‘a fully effective backstop to remove tail risk in the euro area’ is expected to limit Swiss franc appreciation," he said.