Investors return to JSE

STOCKS: EVEN WITH GOOD SENTIMENT, IT’S VITAL TO BE VERY SELECTIVE

With a five-year view, you should see higher economic growth and greater infrastructure investment, says Williams.

The recent changes to SA’s political landscape have had a clear impact on investor sentiment. Foreign buyers have returned to the JSE, and there’s far more optimism towards companies exposed to SA’s economy.

The question for investors is what this means for local stocks.

Centaur Asset Management’s Roger Williams says that despite the improved sentiment, it’s important to be extremely selective.

“Domestic cyclical stocks have already moved up dramatically. The banks are up 40% to 50% in the last three months, retailers like The Foschini Group, Truworths and Mr Price have also gained a similar quantum. So they have already discounted a rosier future.”

This is despite the fact that the reality on the ground hasn’t really changed.

“We haven’t seen any stimulus to consumers, so they may be more confident, but they won’t be feeling that much wealthier,” Williams points out.

“There was no tax reduction, no interest rate declines, and we saw the VAT hike. So these share prices moves seem a bit premature.”

He therefore believes the easy money in these sectors has already been made. One area which is interesting is the construction sector.

“If an investor is willing to take a five-year view, you should see higher economic growth and greater infrastructure investment in South Africa. An improvement in mining spend and the need for companies to spend on pollution control in light of the recently-announced carbon tax could be further positives for construction spend.”

If government upholds its commitment to timeous payment of debt, this would also help the construction sector.

“Construction companies could face the trifecta jackpot of higher revenue growth, margin growth and rating increases, making them outstanding performers,” Williams says.

“The blue chip of the sector, WBHO, will benefit, but for the more adventurous private investor, there are a number of small capitalisation construction stocks which could give multiple upside, albeit with higher risk.”

He also believes there may be opportunities in the listed property sector – notwithstanding the significant declines this year in the values of the Resilient group of companies.

“You have to be very selective in property because I think a lot of companies are tainted by their offshore holdings, poor leases that need to wash out and over-supply of office space in Johannesburg…

“But the lower cost of capital will benefit the sector. Growthpoint, for instance, has been a very good performer so far this year.”

The JSE’s largest REIT is up over 10% year to date.

Certain sectors will, however, be hurt by the budget. Williams believes a stronger rand and the implementation of carbon taxes will detrimentally impact exporters who are also major carbon emitters.

“Sasol’s equivalent carbon dioxide emissions were 69 million tonnes in 2016, so a carbon tax will be quite material to that business, even though it will be phased in.

“Other large export-oriented carbon emitters such as Sappi, ArcelorMittal and Merafe will also be adversely affected.”