The domestic economy has been characterised by two primary themes over the last 2-3 years; firstly, increased synchronisation with developed economies, and secondly, a positive terms of trade shock that underpinned a significant upturn in household demand. This period was also accompanied by a significantly overvalued exchange rate of up to 25% at times, which managed to keep inflation and the import bill contained. The combination of these trends has resulted in significant margin expansion for corporates, hence corporate cash buffers still imply good growth prospects down the line, improved business confidence permitting.

In 2013, we expect sub-trend demand growth to dominate, with economic growth remaining mired at 2.5%. The slowdown in terms of trade-driven income growth in 2012 suggests domestic demand will adjust lower following several years of excessive growth. Indeed, based on our forecast of real gross domestic demand of 2.9% in 2013, it will be the weakest year since the recession in 2009, and before that, the weakest since 2001.

We believe the rand exchange rate should correct from an oversold position. Reducing inflation risks, sequentially higher GDP growth, and a reduction in the current account deficit are factors supportive of improving rand fundamentals (DBe 8.40/USD end of 2013). Against the backdrop of poor investor sentiment, which could take time to adjust, risks to our view remain to the upside.

Eoin Treacy's view South Africa has been among the better performing markets globally over the last few years, not least because of the growth of its domestic economy and the strength of its commodity exports. However, industrial unrest has made headlines, particularly in the mining sector, while electricity generation has also become a concern over the last number of months. This has taken a toll on the currency.

The US Dollar has held a progression of higher reaction lows against the Rand since late 2011 and posted a new more than three-year high this week. A sustained move below ZAR8.75 would be required to question medium-term scope for additional upside. The Euro has also been appreciating against the Rand over the last year.

The Johannesburg All Share has more than doubled in nominal terms since 2009 and has found support in the region of the 200-day MA on successive occasions in that time. It rallied from the MA three weeks ago and has returned to test the peak near 41,200. A clear downward dynamic would be required to reconfirm resistance in that area while a sustained move below the 200-day MA, currently near 37,700, would be required to question the consistency of the medium-term uptrend. In US Dollar terms the appreciation has been considerably less impressive.