[2008-10-27]  Analysts confident Botswana will weather the market storm
High levels of liquidity and strong capitalisation have helped sustain a sound banking sector, helping the economy dodge the worst fallout from the international credit crisis, though this does not mean Botswana will escape completely unscathed.

"It is unlikely that similar problems will be experienced here," asset management company, Botswana Insurance Fund Managers (Bifm), which looks after more than US$1-billion (P74 billion) in investments, says in an economic review report.

Botswana's low level of dependence on foreign borrowing will also help limit the impact.Another asset management company, Stanbic Investments, which has P4.2 billion under its management, says investors "must remain calm".

The company says though it is natural for clients to be concerned about current volatilities in the market, it is important that investors are not emotional when making investment decisions.

Stanbic's Chief Investment Officer, Baboni Mogasha, agrees that the Botswana capital market has not been directly affected by the global turmoil, but that the effects of high commodity prices have been felt through higher fuel and food prices and a more restrictive monetary stance.

Mogasha says the local market has been insulated from the US mortgage crisis in that none of the listed entities on the stock exchange have had any direct exposure to any of America's troubled financial institutions that collapsed.

"Our banking sector remains fundamentally strong and continues to dominate the domestic equity index," she says.Analysts say the local equity market has been reacting mainly to local economic factors and there has been no correlation to other markets.
The end of the second quarter marked the conclusion of the bear market that had been experienced since the fourth quarter of 2007. The equity market had experienced a protracted period of negative performance, losing almost 30 percent as local stocks went through a market correction exacerbated by the Lobtrans fraud case that affected the banking sector at the beginning of the year.

The strong rebound that followed in June is testament to strong company fundamentals and high business and consumer confidence, Mogasha says.

The Bifm economic review says the recovery on the BSE is particularly striking, given that the fortunes of the DCI are dominated by financial sector stocks, and that elsewhere these have suffered from the most dramatic losses as banks have been at the centre of global problems.

Botswana's banking sector also remains robust and still has ample liquidity to finance credit expansion.

There is no sign of a downturn in demand for credit.The report further says there is no evidence of any problems in the property market, and even if there were, it is unlikely that the Botswana banking system would be vulnerable due to the relatively low level of property lending.

Furthermore, over 40 percent of commercial banks' assets comprise Bank of Botswana Certificates or Treasury Bills, which have a zero risk weighting.

Both asset management companies, however, acknowledge that as a small economy, Botswana is highly integrated into the world economy, thus likely to be affected in different ways by global economic and financial developments.

Stanbic Investments says Botswana's sizeable pension funds and foreign exchange reserves have offshore investments in global markets, and are likely to suffer some losses.

But these savings vehicles are long-term investments which are also cushioned slightly by diversification benefits.

One area that the global turmoil will impact Botswana negatively is trade. Increased food and fuel prices have pushed up import costs sharply, with total imports 42 percent higher in the first half of 2008. Fuel imports were up 69 percent and averaged nearly P500 million a month in the first half of the year, accounting for nearly 20 percent of total imports.

The combination of rapid import growth and slow export growth has led to a sharp fall in the balance of trade (exports less imports), which fell from a monthly average surplus of P880 million in the first half of 2007 to P256 million in the first half of 2008.

"This is not of any immediate concern, given Botswana's high level of foreign exchange reserves and the fact that the balance of payments as a whole remains in surplus," the Bifm economic review said.

Another main threat lies in the potential impact of prolonged global economic slowdown on the mining industry, which is the backbone of Botswana's economy.

Stanbic Investments says investors must understand that markets go through cycles, and that times like these when markets are depressed offers opportunities for those with a higher risk appetite.

Mogasha insists that investors' decisions should not be driven by panic and fear. She quotes billionaire investor Warren Buffet who recently said: "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful".
Stanbic Investments believes that in order for investors in equity markets to mitigate losses, they must have a long-term investment horizon, a well diversified portfolio and should stick to their investment objectives.

Analysts believe the next six months will be crucial in determining how the impact of the global crisis on Botswana will play out.




Source: Chronicle