Ashburton, the asset management unit of FirstRand, says SA remains an attractive destination for long-term investment given the country’s strong equity performance, which it expects to continue next year.
The group’s positive outlook for SA equities is attributed to the strong performance of its equity fund, which had a “healthy exposure to smaller and mid-cap stocks” over the past three years, being invested in companies such as Grindrod, Alexforbes, Massmart, Raubex and WBHO. Over this period, the fund delivered 95 basis points per year of positive alpha over its benchmark.
“In general, we are very positive about the long-term investment prospects of our local equities. We have also made the decision to pivot our strategy, with our equity fund now being 100% invested in SA equity in 2024,” said Ashburton head of intermediated distribution Steven Amey.
Of the 1,852 domestic unit trusts and collective investment schemes in SA, only 62 are purely invested in local stocks.
Ashburton said the decision to pivot to a purely SA equity fund was partly in response to a valuation opportunity in SA equities, particularly in the smaller and mid-sized companies, but the group still expected its SA assets to outperform offshore assets next year.
“Investment sentiment is actually positive in SA,” said Amey, pointing to a recent global survey by Credit Suisse Group and the London Business School, which found SA to be the global leader in equity returns between 1900 and 2016, thanks to its commodity-rich nature.
“While past performance is not always a predictor of future performance, we have many reasons to feel positive about investing in SA into the future,” he said, listing local interest rate cuts in September and November, consumer confidence reaching a five-year high, six months without load-shedding and growth in SA’s renewable energy industry — “good news for producers who boost our economic development”.
He also cited positive moves towards privatisation, helping to fill the gap left by Eskom and Transnet, and a recent surge of activity in the mining sector, which has seen more than R170bn worth of new deals and M&A.
“It is very positive to see that 140 local CEOs recently committed to support the government’s economic reform targets,” he said, adding that the two-pot retirement system was also good news for local pension fundholders, as it provided individual investors more financial flexibility.
Ashburton head of equities Charl de Villiers and chief investment officer Patrice Rassou said the group expected a “big rebound” in SA’s GDP next year, forecasting growth of more than 2%.
“Consumer plays should continue to do well, helped by improved consumer confidence, lower interest rates and the windfall from the two-pot withdrawals,” they said.
Additionally, gross fixed capital plays were expected to benefit from increased investment, adding upside potential to the GDP forecast.
While SA’s GDP outlook was recently revised lower on disappointing third quarter numbers, the weak GDP print was heavily affected by weaker agricultural output and did not “signal a permanent reversal of some of the positive momentum building in the local economy”, Ashburton said.
The election of US president-elect Donald Trump, rising geopolitical tension and China’s sluggish economic recovery added uncertainty to the local equity market, but these developments were offset by the positive effect of lower interest rates and the increase in investment needed from the private sector to solve structural bottlenecks within the power, transport and logistics sectors of the economy, it said.
“We still feel that an opportunity exists for improvement in SA company earnings and ratings over the medium term. We feel that with the right policy and structural reform in SA, these self-help upside opportunities outweigh generic emerging market risks associated with a Trump presidency.”
Looking ahead to next year, Ashburton said SA bonds and equities remained attractive, with potential upside from local and foreign investors’ growing appetite for SA assets over those offshore, particularly in the US.
“We think US valuations are stretched after two years in which the S&P 500 has delivered about 25% per year and the expectation that the Trump administration will deliver a miracle,” the company said.
However, conditions in SA’s mining sector were likely to remain challenging, “as the Chinese economy remains in a slump, hamstrung by a deflationary environment, low consumer confidence and excess stock in the property sector”, with Trump’s tariffs also a potential threat to the Chinese export sector.
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