Isaac Moledi

Isaac Moledi

Why should the currency of a developing country such as South Africa depreciate whenever a major country like the US faces a market crisis or financial crunch?

Why should we be affected when the US housing market collapses?

Why were our commodities and currency adversely affected by last year's global credit crunch even though South Africa's exposure to the US's sub-prime crisis was limited?

The answer, say the experts, lies in the way global investors view South Africa. The more negative their sentiments are, the worse the situation becomes for us.

Marize Pieters of Glacier Research says negative sentiments have a direct impact on the economy as we saw in the past 15 months when offshore investors sold out of emerging markets like our own.

This led to a sharp depreciation of the rand which, together with high inflation, high interest rates and poor demand for our resources, resulted in a poor economic outlook, Pieters says.

Duncan Artus, portfolio manager at Allan Gray, confirmed the sharp sell-off, especially during September to November last year.

He says South Africa has come through the crisis relatively unscathed, "unless you were a dollar investor in our equity market".

He believes the world's problems were transmitted to South Africa through much lower commodity prices and a weaker currency.

He says this will have a greater effect on the real economy.

He says the local economy is influenced by commodity prices and that is why there is a visual correlation with last year's low motor vehicle sales.

Pieters says: "Every investor probably wishes they'd moved into cash at least a year ago.

"In fact, over the last six months, record amounts of money have been moved into money market accounts as investors seek safe havens," she says.

Pieters advises investors to sit tight. She warns investors not to be emotional.

"Investors tend to go against common investment theory which dictates buying low and selling high. Out of panic, they sell low and buy back high," she says.