Category Archives: Team Commentary

Team Commentary

ECB QE – action or no action, and our reaction

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With expectations that the ECB will be announcing its position on QE today, it’s off to the races for all financial market participants. The buildup to the announcement has been event filled to say the least, with a number of central banks surprising the market, currency moves wiping FOREX brokers off the face of the earth, European bonds turning negative across the curve and volatility dominating equity markets.

However, the ECB is known for being excessively conservative in their decision making and has set a track record of disappointing on its delivery of QE and macroeconomic support. Delivering many promises, but little action.

The market action over the past couple of months suggests that market expectations are set extremely high, banking on a possible €600 billion plus program, despite strong opposition from Germany as well as challenges faced with the practical execution thereof.

From an investment perspective we recommend approaching the announcement conservatively positioned in order to avoid catastrophe in the event of disappointment. We would rather add risk to the portfolio after the fact, on concrete information as opposed to conjecture. One lesson learned from past QE is that returns are made over the duration of the program and not only over the first day, week or month.

We’ll rate the following factors to determine the degree of risk we are willing to take:

ECB-BullsvsBears

2014 New Vehicle Sales

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1,831 new vehicles were sold during December, slightly less than November, as December is usually a seasonally slower month, nevertheless, an increase of 53.9% y/y. Monthly sales figures show record sales were seen during every month of the year in 2014. Total sales for the year stand just shy of 22,000 vehicles, up 36.2% on the 16,113 vehicles sold the previous year.

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During 2014, 9,629 passenger vehicles drove out the show room, with the sales 25.7% higher than 2013, highlighting the flamboyant state of the consumer. Commercial vehicle sales also increased significantly, with strong sales from the light, medium and heavy commercial categories. Commercial vehicles sold totaled 12,323, up 45.8% on last year’s figure.

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Toyota and Volkswagen dominated the passenger market, selling the most vehicles in 2014, with the two brands claiming 30.6% and 22.4% of sales respectively. Toyota was also the market leader in light commercial vehicles, having the lion’s share of sales at 47.7% of the market, followed by Nissan at 14.5% and Ford in third place with 9.9%.

The Bottom Line

The strong increase in vehicle sales is attributed to a number of factors, namely the on-going expansive fiscal and monetary positions of the Ministry of Finance and Bank of Namibia, as well as purchase of vehicles by Government. The Ministry of Finance has allocated N$984.5m to vehicle purchases in the 2014/15 National Budget, a N$517.8m (111.0%) increase on the vehicle expenditure budget of the 2013/14 financial year. We expect the strong growth trend to continue, however sales may slowdown as monetary policy tightening is likely to continue. Nevertheless, government tenders yet to be delivered will maintain the momentum of vehicle sales through 2015.

Local pump prices – plenty of room to fall further

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Out of interest, I had a quick look at a regression of the oil price on local fuel prices. This suggests that pump prices still have a long way to fall locally, as the current low oil prices in Jan will only be passed through to pump prices in March/April(/May) – see Namibia CPI – December 2014. If oil prices remain as low as they are currently, if the Rand remains stable(ish), and if these declining prices are passed through to the consumer (rather than used to build a slate account balance), we could see coastal pump prices for petrol of under N$7 per liter! While possible, however,  this is a bit unlikely, primarily due to the fact that oil prices will probably not remain as depressed as they are now for a prolonged period. As well as this, I doubt that the entirety of the price-fall will be passed along to consumers, and rather that a slate account balance will be accumulated which will allow for better price smoothing over coming months/years, when prices of oil are likely to be volatile.

Namibian Petrol Prices