After years of declining investment attractiveness, South Africa may be on the cusp of a turnaround. In this month’s Not the Daily News Michael Avery chatted to Anton Eser, Chief Investment Officer at 10X, who outlined several factors that could spark renewed interest in South African markets.
Over the past decade, South Africa’s share in the MSCI Emerging Market Index has dropped from 10% to 3%. Eser attributes this decline to several factors, including stagnant GDP growth, persistent load shedding, and diminishing confidence from global investors. Additionally, regulatory changes, such as amendments to Regulation 28 for retirement funds, have led to significant local investor outflows.
Despite these hurdles, recent developments bring optimism:
- Political Changes: The announcement of a potential government of national unity has sparked optimism in the markets.
- Improved Energy Situation: Load shedding has decreased in recent months, boosting confidence.
- Valuations: The local market is trading at attractive valuations, with a forward P/E ratio of around 10, compared to 16-18 pre-COVID.
- Technical Factors: The outflow of local investments may be reaching saturation point.
- Relative Performance: South African bonds and equities are well-positioned compared to expensive global markets.
In the podcast below Anton considers an Investment approach:
- Overweight local markets relative to foreign markets
- Focus on bonds, particularly inflation-linked bonds offering real yields of over 5%
- Consider domestic-focused companies like banks and retailers, which may benefit from improved consumer confidence
South Africa has a unique opportunity to turn its economic trajectory around. With low valuations, reduced regulatory-driven outflows, and potential confidence boosts, the country could see strong market performance if stability continues.
Listen to the full episode in the link below.
