South African commodities are still drawing attention but there are concerns over the perceived unst...
South African commodities are still drawing attention but there are concerns over the perceived unstable social situation in the region. In particular the 30% unemployment rate has been affecting sentiment.
For the year ending 29 September the Johannesburg All-Share index was up 17.8%, in sterling terms, compared to the FTSE All-Share returns of 7.19.
The largest portion of the Johannesburg All-Share Index is taken up by the mining, holding and houses sub-sector index at 16.09%, with banks making up 11.38% of the market, diversified industrial at 9.92% and insurance comprising 8.5%.
The platinum sub-sector, the fifth largest in the All-Share, has been the best performer over the past year, returning 29.43%, in sterling terms.
Angus Tulloch, head of global emerging markets at Colonial First State, says: "There is a problem of confidence with South Africa. There is a lack of money for education and high crime and unemployment levels are the main factors to hit market sentiment.
"Zimbabwe has also had a knock-on effect on the perception of South African politics. Because President Mbeki was not more virulent about denouncing events there, people have become worried about their property rights in South Africa."
However, Richard Rothwell, fund manager, emerging market equities at Deutsche Asset Management, thinks the problems of Zimbabwe and its effects on the South African market have been over-emphasised.
He points out that valuations of equities in South Africa are very cheap and earnings remain strong, particularly in resources.
However, Rothwell says there is a risk of earnings disappointment and if people start to get nervous about global growth, commodities could suffer.
There are companies which Deutsche does not hold, such as Dimension Data, which Rothwell considers too expensive and M'Cell, one of South Africa's two cellular companies.
"There is not a favourable environment for mobiles in South Africa," he explains. "There are many pre-paid subscribers which are not as profitable as contract subscribers. The returns they have had in the past are unlikely to be repeated in the future."
Deutsche are slightly overweight in South Africa and are more positive on it than other markets, Rothwell says.
Ashok Shah, head of emerging markets equities at Old Mutual agrees the large, resources based conglomerates are undervalued.
Companies such as De Beers and Anglo American have very complex cross shareholdings and if the shareholding structure was made more transparent there would be the potential for them to be more appropriately valued, he says.
In the past few months Shah has increased his exposure to Anglo American.
Other sectors he finds interesting include financials, which he believes are quite cheap.
"The market is worried that interest rates have to rise a lot, if they do not rise too much we can look forward to a good recovery in the sector because it is inexpensive."
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