Know Which Way the Wind Blows Abroad

You may be inclined to make fun of me for this, but I watch the Saturday morning stock market shows on the Fox News Channel. This past weekend, Scott Bleier made an interesting stock pick on "Bulls and Bears" that also illustrates very well the work needed when picking individual stocks from foreign countries.

The stock he picked was Sasol (SSL - commentary - Cramer's Take), a large South African oil company, which has an NYSE-listed American depositary receipt, or ADR, that trades under the ticker SSL. Let me be clear up front that that my intent here is not to pick on Bleier or Sasol; in fact, I used to own Sasol for a few clients but sold it in the spring. I like the company and what it's working on, but -- and to the point of this piece -- South Africa has some top-down headwinds that need to be explored and understood before buying Sasol.

South Africa faces several problems these days.

Earlier this year, South Africa got caught up in the "sell the current account deficit/emerging markets" trade that started in Iceland and hit Turkey and Hungary. And in the last six months, the South African rand has declined by 29% against the dollar, far worse than the other deficit countries. Check out this chart of the USDZAR, the reading of the U.S. dollar vs. the rand.

Rand Down South Africa's currency has declined against the dollar

Also on South Africa's laundry list of problems: Producer prices for August came out last week at 9.2% year over year. South Africa's central bank, the Reserve Bank of South Africa, has been raising rates aggressively, but perhaps ineffectively. It currently has the overnight interest rate at 8.0% and is expected to hike again to 8.5% when it meets on Oct. 11 and 12. There's the possibility of another 50-basis-point hike in December.

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At the time of publication, Nusbaum had no positions in the stocks mentioned, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.