The Johannesburg All-Share Index is up 48% since 12 September making South Africa one of the world's...
The Johannesburg All-Share Index is up 48% since 12 September making South Africa one of the world's best performing equity markets over the past two quarters.
Fund managers have generally played the market through stakes in multi-national miners and industrials, which have outperformed domestic consumer stocks. Global strategist at M&G, John Hatherly, says the well-managed global mining companies, such as BHP Billiton, Anglo American and Angloplat, are prospering because of a rebound in the global economy and the falling rand.
'South Africa, like Australia, is one of the great mining centres of the world and mining stocks make up 45% of the All-Share,' he says. 'These stocks have done outstandingly well and that has pushed up the index.'
Hatherly believes the outperformance of mining stocks in South Africa could continue, despite their recent strong run.
'I would not like to rule out the mining sector continuing to do well,' he says. 'Historically, it performs strongly when the global economy is in recovery mode.'
Slim Feriani, emerging markets manager at Martin Currie, maintains a cautious stance on South Africa but says it is too large a part of his benchmark, the MSCI Global Emerging Markets Index, to ignore. As of May this year, the country will account for 12% of that Index, up from 10%.
Most of Feriani's plays are hedged on a depreciating South African rand. The rand has stabilised recently but Feriani is concerned about the impact of regional political events. The Zimbabwe elections, scheduled for March, are seen as a potential threat to the stability of South Africa's currency.
Feriani says: 'The Zimbabwe story hurts the rand and the perception investors have of South Africa. It is therefore very dangerous to play something against the rand weakness.'
Because of this, Feriani is underweight domestic stocks and overweight resources and basic materials.He says: 'In the global cycle, we expect some kind of recovery this year, which will benefit cyclical stocks, particularly basic materials.'
Feriani favours the gold multinational Anglo American, which accounts for one third of the South African index. In addition, he likes Goldfields and iron ore player Kumba Resources.
Niall Paul, head of emerging markets at Morley Fund Management, is also overweight in the South African resource sector, holding both Anglogold and Goldfields.
He says: 'The outlook for all commodity stocks has improved substantially and there has also been increased consolidation with the recent bid by Newmont Mining for Normandy.
'Hand in hand with consolidation comes the improving prospect for the gold price as producers unwind hedged positions. The recovery is self perpetuating. Adding to the positive environment for miners, the gold price has moved from $270 to $300 per ounce.'
Paul, like Hatherly and Feriani, has concerns about the domestic economy. He says: 'There is a long-term trend for the rand to weaken and South African investors continue to look externally to invest.'
Mining stocks could continue to perform.
Weak rand continues to benefit stocks.
Cyclicals to benefit from global recovery.
Mining stocks have had a good run.
South Africans still investing abroad.
Local economy to underperform peers.
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