Asset manager Old Mutual Investment Group (OMIG) says it is allocating capital to gold and rand-hedge defensive stocks ahead of SA’s elections — with uncertainty about the outcome high as the governing ANC faces its toughest polls to date.
“We do not seek to position our portfolios around the May 2024 elections given that the outcome is so uncertain; instead, we favour a diversified approach that includes some exposure to gold as well as defensive rand-hedge shares like British American Tobacco (BAT) and AB InBev,” said OMIG’s head of equities research, Meryl Pick.
BAT’s stock is up more than 6% year to date, while AB InBev is down 5%.
Goldman Sachs last week raised its average gold price forecast for 2024 to $2,180 from $2,090.
Gold stocks on the JSE have also had a solid start to the year.
Harmony Gold, SA’s biggest gold producer by volume, is up 20% since the start of the year. The company in February declared a record interim dividend after benefiting from a stronger gold price and a rise in output.
AngloGold Ashanti is up 12.6% year to date, while Gold Fields is down 2% in the same period.
Pick said another drawcard on the domestic equity market, battling declining trade volumes, are domestic banks and clothing retailers. She said this was driven by the belief that the country has reached peak interest rates and a reduced level of load-shedding.
“We have been incrementally tilting our portfolio back to SA Inc as we anticipate a better year ahead, primarily due to the reduced level of load-shedding being factored into our projections,” Pick said.
“This should mitigate some of the commodity inflation pressures in areas such as food, oil and energy. As a result, conditions are improving slightly for consumers and potentially enhancing growth prospects.”
OMIG, which is one of SA’s largest money managers, said it was also warming up to the construction sector after years of the sector struggling before the construction boom leading up to the 2010 Soccer World Cup in SA.
The decimation of the sector has seen many groups fall by the wayside, with the likes of Raubex and Wilson Bayly Holmes-Ovcon the only players with balance sheets strong enough for big projects.
“The uptick in state infrastructure spend plus private sector spending on renewables is good news for the sector,” Pick said.
The Afrimat Construction Index released on Tuesday showed there was cause for hope for the sector.
The index showed that job creation in the sector expanded in 2023, with 110,000 new jobs having been created, compared with 31,000 in 2022.
Pick said the hotly contested elections, set to take place at the tail end of May, has seen many pundits predict the ANC’s national support to fall below the important 50% mark.
“The polling data from various sources points to ANC support falling below this level,” Pick said. “However, national election results can surprise depending on a range of variables including the turnout on election day and the veracity of campaigning.”
She said the base case scenario is that the ANC will fall just below the 50% support and team up with a smaller party, while the possibility of an ANC-EFF coalition is still very much on the cards — a likelihood that Pick said would send the country in a more populist direction.
“There is so much negativity priced into the rand and bond yields — sentiment is low, offshore investors have run away and we have fallen out of many global indices; if we hold a peaceful election that delivers either a small ANC majority or coalitions between the ANC and other small parties, or the ANC and a moderate opposition, we could see a significant rally in local-facing equities.”
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