“Australia, New Zealand and South Africa will be among the favourites to win the Rugby World Cup, which kicks off at Twickenham on 18 September 2015. These southern hemisphere nations have, after all, lifted the Webb Ellis Cup on six of the seven occasions it has been contested. But while they may well experience further success on the pitch this year, economically their dreams are fading, with a dependence on China’s slowing economy the common link.
“Take the All Blacks, the World Cup holders, who are hot favourites to win the trophy for a record third time. New Zealand’s small, open economy has been hard hit by a 27-month long slump in the price of dairy products, the country’s main export. The economic slowdown in China is hurting domestic growth in various other ways. The world’s second largest economy is New Zealand’s second largest export market, while weakening Chinese demand for natural resources such as iron ore, coal and copper is causing a sharp downturn in Australia, New Zealand’s biggest source of export earnings.
“Meanwhile, across the Tasman Sea, Australia has lifted the Rugby World Cup twice since its inauguration in 1987. Its economy has also grown at double the pace of that of its peers over the last two decades, supported by a resources boom that has fed China’s seemingly insatiable appetite. But while the Wallabies will be as confident as ever of being crowned rugby champions, the outlook for the economy is weakening. As China seeks to make the transition from an export-led to a consumer-oriented economy, demand for Australian minerals has, softened, while the global price of those commodities has also fallen significantly. National per capita real income in Australia has been falling since 2012, the most prolonged fall in national incomes in a generation, while unemployment is rising and the economy is barely growing.
“South Africa entered the World Cup for the first time in 1995, yet the country’s name has already been engraved twice on the trophy. The Springboks will doubtless pursue another victory this year with their usual relentless aggression, but back home the economic outlook is perhaps the worst from among these three rugby-playing giants. Last year, International Monetary Fund researchers noted: “If China sneezes, Africa can now catch a cold”, and that is certainly proving true in South Africa’s case. The resource-dependent economy contracted by an annualised 1.3 per cent in the second quarter. Power shortages and a drought, which has hit agricultural production, have compounded the woes of the mining sector.
“All this gloom doesn’t have to be bad news for investors. There are many excellent New Zealand, Australian and South African companies that will perform well despite the weakening domestic environment. In addition, some funds can target investment ideas that can exploit some of the trends identified earlier. One of our investment ideas aims to protect investors from the slowdown in China, namely a position in Australian government bonds. The weakening Australian economy should lead interest rates to remain low and possibly fall further, boosting the appeal of government bonds. This strategy performed very well during the turbulence seen in August, largely sparked by concerns about China’s economic outlook.
“Finally, I suspect that if one of these rugby-mad nations does lift the World Cup at Twickenham in October, a large section of the population will forget its economic troubles for a good while,”
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