Portfolio Manager, Peter Brooke, shares his latest Macro Perspectives, this week looking at global currencies through the lens of seeking the best country to holiday outside of SA currently.
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Peter Brooke 00:00
Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 34 of 2022, and I want to address a critical issue. Where can one afford to go on holiday with a weak Rand? Especially as it's just depreciated by three and a half percent in the last week.
Personally, I always try and go wherever another currency has blown out. So, the obvious destination looks like Turkey, where the Lira has depreciated by 113% against the US dollar in the last year. However, Erdoğan is following very unconventional monetary policy. He cut interest rates by 1% this month, while inflation is rampant at 80%. And as a result, all the tourist resorts are essentially charging in hard currency prices. So, it's two Euros 50 for a beer at the bottle store, which doesn't sound that appealing.
Moving down the list of one year moves, we get to the Japanese Yen, down 25%. The Euro down 17%. And the Pound down 16%. This is all before we get to the Rand, which is only down 12%. So, hang on a minute, we can actually almost go anywhere in the world, because the Rand is actually a strong currency, apart from the US. And the US won't let us in anyway, as their visa queues are too long. So, my first point is to be sure to have the correct perspective. This is really a story about a strong dollar, not about a weak Rand.
My second recommendation is talking my own book, and it's to head to the biggest tourism recovery in the world, Thailand. Tourism was more than 10% of GDP pre-Covid. And essentially foreign tourists fell to nothing during Covid. And this is coming from a base of just under 40 million tourists per annum. And it had an enormously terrible impact on all aspects of the economy. Think about it. Almost 20% of all consumption in the country was driven by foreign tourists: buying beers, using cell phones, impact on food, accommodation, etc. Now, this is just starting to recover. And we expect between 8 to 10 million tourists over the next 12 months. So, a very strong rate of change coming from zero. And this is before China comes to the party. China was the biggest single market for Thai tourism. And with their zero-Covid, there is nothing, and there isn't an expectation of anything in the short term. But if you look longer term, there's obviously potential for a further recovery.
So, the result of this is that Thailand has a unique growth driver. And importantly, this is taking place in an environment where the rest of the world is slowing, making its growth much more valuable. As a result, we've sent some of our money for a visit and have bought some Thai equity exposure on behalf of our clients. Therefore, the more tourists that go, the better for profits and our investment. So, as I said, my top holiday destination pick for this year is Thailand.
I hope you find this perspective useful. Until next week.