South Africa's economy is vulnerable due to the fact that the country lacks a savings culture and needs to rely on foreign investment at a time when global conditions are tightening up.

This is the view of investment expert David Shapiro, who was speaking to a gathering of investors at a Kaya FM function on Monday evening, sponsored by Momentum.

"The problem is that South Africans are not savers – we spend," said Shapiro.

Things turn sour

"To develop we have to rely on foreigners – but when things turn sour that [investment] doesn't flow in," he said, referring to the fact that the country had embarked on a massive infrastructure spending programme in 2005.

This spending programme has to be financed from investment flows, whether locally via savings or from overseas via portfolio or direct investment.

Shapiro highlighted that this scenario upset the imports over exports weighting and also raised depreciation risks for the rand.

"That's where the economy is vulnerable," said Shapiro.

However, he went on to paint a positive picture of value emerging locally as even quality shares were pushed lower by the global banking crisis.

Shapiro also pointed out that geared products were the source of the current crisis and that this was also the factor behind the commodity sell- off now being seen.

"At the beginning of the year when the crisis took grip people feared the dollar was under pressure and moved out of the dollar and bought commodities as a hedge, and at the same time oil was demand driven," he explained.

"There were moves into commodity funds and funds were formed to track commodity indices," he said.

Fear has gripped Europe

"Now fear has gripped Europe and people moved back to the US and the dollar improved and the need for commodities lessened," he said.

"There was repatriation from emerging markets as investors were worried," he added.

He noted that the euro fell the fastest it has since trading started in the single European unit in 1999.

The safe haven of choice has become US Treasuries.

"We're perplexed by it. If it sounds confusing it's because it is," he said.

"It is difficult to put the pieces of this puzzle together," said Shapiro.

He said the crisis had now resulted in a de-gearing of balance sheets and that when people become forced sellers you get "exaggerated moves".

The JSE was up 40 points in early trade on Tuesday after hitting the lowest levels seen in two years on Monday.

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