Investors lap up SA stocks, bonds despite unrest

SINCE a spate of wildcat strikes erupted across SA, the headlines have been damning and the image of Africa’s most developed economy has been severely tarnished. But so far the country’s equity and bond markets have bucked the trend of negativity.

In the weeks since unrest broke out in the rich platinum belt and spread to gold, the JSE as hit new highs in rand terms and is up more than 5% since August 1.

At the same time, foreign flows into the bond market have remained strong. After SA was included in Citigroup’s world government bond index on Monday, the bond market saw foreign gross purchases of about R11bn a day, about three times the average, according to Leon Myburgh, an analyst at Citi.

This year the bond market has attracted net foreign purchases of R87bn, up from R42bn for the whole of last year.

The capital markets’ apparent ability to avoid the contagion of labour unrest is put down to domes- tic and global factors. From the perspective of the stock market, this performance is seen as a reflection of the strong showing of financials, industrials and retailers, offsetting the diminishing role of struggling resource-related stocks.

A moderate weakening in the rand — which is down 0.8% against the dollar since August 1 and is 3.9% lower on the year — has cut into foreign investors’ returns.

However, with the JSE’s all-share index up 22% this year, South African shares have done well by global standards: even in dollar terms they are up 18%.

SA is credited with being one of the best regulated and most liquid emerging markets, as well as being Africa’s largest by far. Many of its companies offer exposure to the much-touted Africa growth story, even where the domestic investment climate is struggling.

“This economy is not only about mining,” says Stephen Meintjes, head of research at Imara, a regional investment bank. “People are investing in our companies, not our government, and we do have some very good companies.

“A lot of them are global class and a lot are operating all over the place — increasingly, they are on an Africa charge.”

Stocks that have stood out include retailers, companies such as British American Tobacco and luxury goods group Richemont, and MTN, the emerging markets mobile phone operator, according to Ryan Wibberley, an equity dealer at Investec Asset Management.

During the past 12 months the retail index is up about 50%, while for the year so far Richemont and MTN are up about 30%. In contrast, the top 10 resource stocks are down 9% this year.

“We have been slightly protected by the global situation, which is forcing money to find homes in strange corners of the world which it never has before,” he said.

“The headlines, in days gone by, would have been catastrophic for SA. But that just didn’t happen to the extent that it may have. In the context of where the world is, SA, despite the negative headlines, still offers favourable returns.” There is a sense that much of the negative news is priced in. Financial Times