Foreigners more upbeat about SA
NO NENEGATE REPEATS EXPECTED Foreign investors who don’t have to eat, sleep and live our politics are adopting a far more benign approach to our troubles and fully expect us to survive and thrive in 2018.
After a tumultuous period in the wake of Nenegate, foreign investors now have a positive bias towards a favourable political outcome in South Africa. Speaking about key takeaways from its 18th Annual Merrill Lynch Investor Conference at Sun City, SS strategist, John Morris, said foreign investors are anticipating potential positive change following the ANC's elective conference last year. The conference – an opportunity for chief investment officers of local and international fund managers, pension funds and hedge funds with emerging market mandates to meet with chief executive and financial officers from corporate South Africa – was attended by 69 corporates and 184 investors from 71 institutions of which 46 were offshore.
Morris said while foreign investors were worried about the political environment and the future of South Africa, they regarded Nenegate and attempts to have Finance Minister Pravin Gordhan removed as significant events, and didn't expect threats of this magnitude going forward.
And although they weren’t expected to invest aggressively in SA, they felt the country has passed the worst on the political front, he added.
Neil Cohen, head of South Africa Global Markets at Merrill Lynch, said SA seems to be doing all right relative to other emerging markets such as Russia, Turkey and Brazil.
“Maybe the locals feel more strongly about some of the events than the foreigners.”
Against the background of a recovering consumer, the broad theme of the conference was an interest in the retail space.
Morris said while there was virtually no interest from foreigners in this area last year, demand rose after some stock prices returned to fair value after a long absence during the December period.
With inflation expected to moderate and two interest rate cuts pencilled in over the next 12 months, the appetite for retail stocks seemed to have returned.
But while foreigners were prepared to buy growth at any price two years ago, synchronised global growth and broader earnings have changed the picture and these investors are now looking for growth at an attractive price, Morris said.
Foreigners are selective with regard to the retail stocks they buy and are interested in companies that can grow earnings above 10% per annum on a three-year compound average growth rate. Although SA corporates generally highlighted that conditions were challenging, they expected business conditions to trough and that prospects would improve during the second half of the year.
With regard to fears of a rating downgrade, only 18% of local fund managers now expect South Africa to lose its investment grade rating this year, which is down quite sharply from roughly 70% during the period when Gordhan was expected to be prosecuted.