A relatively minor car accident in Isleworth, Florida serves as a useful example of how microeconomic events can have a much broader effect. After all, the absence of Tiger Woods from the PGA tour has had a major impact on projected ad revenues, sponsorships, TV viewership and attendance for golf tournaments.
In its most recent issue of Junior Mining Weekly, analysts at Canaccord Adams considered some potential events that while unlikely, could have macroeconomic effects.
The first is instability in South Africa following the World Cup of soccer this summer. This is arguably one of the most significant cultural events in the world and South Africa is the economic backbone of Africa.
But Canaccord notes that over the past several years, the country’s accumulated deficit in infrastructure spending has produced power shortages that continue to plague the nation and its economy.
“If the aftermath of the World Cup acts as a de-stabilizing catalyst, what would be the ramifications for the rest of Africa?” they ask.
Next up, the mining analysts consider the possibility of conflict in Asia. It is, of course, home to the economic powerhouses of India and China, which have been crucial to sustaining the world’s economic health. The two countries have a long-standing border dispute, which may have heated up in 2009 despite efforts on both side to downplay any conflict.
“This territorial friction coupled with the demographic dynamics of two populations with more young men than women placed in geographic proximity makes a case for increased tension between these emerging powers,” Canaccord said.
If these tensions boiled over, we could see a Sino-Indian political conflict, trade tariffs or worse. Meanwhile, Kim Jong-il is rumoured to be ill, which raises the question whether or not his passing would serve to stabilze North Korea and strengthen Asia as a whole.
Canaccord analysts also noted that U.S. mid-term elections in November will demonstrate whether voters approve or disapprove of the current administration. The results will surely have an impact on the government’s economic turnaround policies and the U.S. dollar.
In Europe, the problems highlighted by Greece have some suggesting one or more of the 27 member states will eventually try to break off from the European Union and its currency, the Euro.
“The recent experience with Greece and the subsequent uncertainty created for the Euro is a telling example of how a single member state can affect the overall confidence in the relatively new currency,” Canaccord noted.
Then there are the risks posed by both natural disasters and pandemics. Haiti, New Orleans and the earthquake in China’s Sichuan province. West Nile Virus, SARS, Avian Flu and H1N1. There are plenty of examples, but could 2010 see more?
Finally, regime change, particularly in Latin America. History has shown that it can be both quick and brutal.
Political winds have already begun to change with Chileans recently voting for a conservative candidate, while South America would be dramatically altered by a departure of Venezuela’s anti-capitalist leader Hugo Chavez.
While Canaccord presents these possibilities as food for thought, if any were to play out, the analysts note that the immediate and lingering effects would lead to a change in risk tolerance, future expectations and investment strategy.
“We invest in an arena of uncertainty,” the mining analysts said “and it does not hurt to consider some outside-the-box scenarios that may end up developing into the stories of 2010.”
Photo: Tens of thousands of Confederation of South African Trade Unions members march on August 6, 2008 through the streets of Pretoria central district to protest against food, electricity and fuel hikes. Thousands protested in South Africa as workers disrupted gold mining and other major industries in a national strike over price hikes rattling the continent's economic powerhouse. (GIANLUIGI GUERCIA/AFP/Getty Images)