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The price of a crisis
?Markets have very short memories? says Javed Burokur, fund manager at CIM Asset Management. Likening the world financial markets to an amnesiac makes perfect business sense given the speed with which trust in them has evapourated. The sooner the markets forget their downfall, the sooner they?ll be able to get back on their feet. Yet while most analysts agree that Mauritian financial institutions are sufficiently sturdy and well-run to weather the global crisis, they are somewhat less optimistic when it comes to its effect on the economy in the long-run.
?The markets have reached unprecedented lows. It doesn?t really matter if they drop any lower. In all likelihood, there will be a long period of stagnation while investors regain confidence in the system?, explains another fund manager at a big local bank. If many investors are ?worried?, a free-for-all has so far been averted. At any rate, unloading their shares now is out of the question as doing so would inflict an ?immediate loss?. For this reason, most of them have opted to play the waiting game. The million-dollar question has thus become, ?How long will the crisis last??.
<B>Bullish hopes</B>
Javed Burokur avers that the crisis has affected most directly those who have invested in international stock portfolios. Although these portfolios try to spread the risk by investing in a broad range of stocks, a plunge in the prices of one or two of these can nevertheless bring the down the value of the whole portfolio. Imagine a group of mountaineers; each climber is attached to the next with a rope. If one climber falls, the deadweight might not be enough to pull the whole party into the abyss but it?ll definitely drag it down a semblance of stability can be recovered. Although he does not expect the crisis to end any time soon, the banks have managed the situation ?quite well?.
Apart from one local company that had itself refinanced by the recently nationalized insurance giant AIG, local financial instructions, which are far more involved in retail rather than investment banking, have kept well away from the financial crisis. Encouragingly, they should thus emerge reasonably unscathed from the global meltdown. ?Mauritian banks did not invest in the high risk subprime market.?
Far more worrying than the financial crisis, which, according to an advisor, is ?mainly limited to financial institutions?, is the slowdown of the world economy. ?There will be less interest in the property market?, cautions the financial advisor. This could have an effect on the bullish hopes of companies involved in Integrated Resort Schemes, especially those angling for the European market. Catherine Gris, an economic advisor is of the same opinion.
Detrimental impact</B>
?The general moroseness will be contagious? she cautions. The result of this is that individual investors, companies and even countries are going to be far more cautious in where they place their money. In turn, this could be reflected in the growth rate.
Naturally, the detrimental impact the crisis has had on consumption patterns across the world will also affect other the sectors of the economy. The tourism industry, for one, is already feeling the bite ?Financial companies are firing employees by the thousands?, avers the fund manager. And every financier made redundant is a potential client lost. Add to that a strong rupee, soaring energy and food costs and the picture looks quite bleak. Despite all of the above, the fund manager expects the industry to remain ?profitable?.
The same cannot however be said for the textile industry. Over and above the impending recession, the industry has to contend with a strong rupee and the rising cost of raw materials. These will make it very difficult for operators to remain in the black. For her part, Catherine Gris believes that textile?s fortunes are linked to an altogether different premise, namely ?the frantic race for competitiveness?.
The US Treasury has announced a USD700 million rescue plan for the American economy. Even the prospect of such a massive injection of funds has failed to stave off fears of the financial crisis spreading further afield. Up until now, Mauritians have felt relatively sheltered from the crisis. How long this will last is anyone?s guess. Whatever happens, there?ll always be amnesia to fall back on.
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