South Africa is seen as a defensive market, especially in times of such global volatility, according...
South Africa is seen as a defensive market, especially in times of such global volatility, according to Suresh Sadasivan, emerging markets analyst at Old Mutual.
The Johannesburg All-Share has risen 13.26% in sterling terms for the year to the end of June compared to a fall of 7.06% in the FTSE All-Share over the same time period.
Financials and retailers are doing better than resources, which were taken up by the domestic market last year, Sadasivan says.
Two companies he favours are Iscore Sappia, a resource company specialising in platinum, and Impala Sappi, which specialises in steel and iron ore. Sadasivan says the companies are at reasonable valuations at the moment.
He adds: 'Global growth has been revised down and is weighing on resources. If there is another rate cut from the Fed then the US will be close to the bottom and people will begin to look at resources again.'
Sadasivan says there is a decent growth outlook of around 3% and it looks as though the environment in South Africa will remain stable. This will encourage a good run for financial services, he predicts.
However, Sadasivan adds that the market is not immune to risk and the rand is coming under pressure.
Jonathan Asante, emerging markets fund manager at Framlington, comments: 'In 1998, the rand got hammered because South Africa was being funded in the short term by outside countries. The country is now running a current account surplus, which is positive.'
According to Asante, the internal situation looks good. 'The South African economy has never been a fast grower and is relatively defensive,' he says. 'It is reliant on metal exports, in particular platinum, as there is a strong demand/supply imbalance. Most platinum reserves are in South Africa and the country is gearing for global export.'
Asante believes there is continued demand for platinum. He says: 'It is now the fashion for jewellery and it is being used in catalytic converters and fuel cells as well. The prices are going up and the companies are well run. Profits being made seem obscene and yet the companies are not too expensive.'
The Johannesburg platinum index has risen 70.94% in sterling terms over the 12 months to the end of June compared to a rise in the All-Share of 14.14%. At the same time the platinum index is on a P/E of 9.14 times while the Johannesburg All-Share is on a P/E of 13.28 times.
Asante also favours South African Breweries as a good company, which has now become listed in London.
He says: 'There is a strong desire for companies to become more global. South African Breweries is the fourth or fifth largest brewer in the world and, although it has no volume growth, it manages to increase its margins every year.'
He is underweight South Africa but adds that, for an emerging market, it has very well managed companies and a first world legal structure. He likes banks, such as Standard Bank, as they are all very well managed.
Worldwide trend for platinum.
First world legal structure.
Running a current account surplus.
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