From Rudi van Niekerk at Desert Lion Capital:
SA is facing its fair share of challenges. The country had one of the longest and hardest lockdowns globally. There will be an economic price to pay. Unemployment reached 30%. GDP is expected to contract at least 7.2% in 2020. The budget deficit is expected to reach -15% and gross national debt to GDP is expected to increase from 66% to 82% in 2020/2021.
Open the news and the headlines will shout corruption, the government s failure to deliver ’ basic services, failing state-owned enterprises, and violence.
The result? Foreign capital outflows and aversion to anything South African. No doubt, investors view SA as icky ”.
“But icky is good. Icky means less competition, higher inefficiency, more mispricing, more great businesses at cheap prices.
What does it mean to have an edge? It means you do better than your competition. It means you outperform the average of the crowd you are competing against. How do you gain an edge? There are two ways the hard way and — the smart way. The hard way is to work harder than everybody else. The smart way is to be selective in the games you play and compete against fewer competitors. And what happens if you are willing to do both, work harder and smarter? Your edge will be significant.
Over the past few years, as apathy and aversion towards SA increased, the competition faded, and the degree of inefficiency just became more extreme.
So here we are at the — crossroads where preparedness meets opportunity. Many of the about 325 JSE-listed companies do not depend on the country to perform to deliver exceptional performance. Yet, most all of them trade at cheap valuations just because they are listed in SA.
The JSE can be a gold mine for the knowledgeable investor.