Mark Mobius on South Africa
For Templeton’s Mark Mobius, South Africa is “the most important market in Africa, followed by Nigeria, Kenya, Ivory Coast, Ghana, and Zimbabwe.” Templeton’s emerging markets group holds a positive long-term view on South Africa with a rise in corporate earnings and profitability expected to follow a period of strong economic growth. He also believes there is untapped potential in this resource and commodity-rich market.
Out of recession
After recording two consecutive quarters of economic contraction in 4Q16 and 1Q17, the economy emerged out of recession in 2Q17, recording a 2.5% annualized Q-o-Q GDP growth rate. Agriculture, forestry, and fishing have been making the largest contributions to economic output of late.
While the political environment deters investors, Mark Mobius is positive
So far, a populist political environment and rent-seeking measures are currently impeding investments from being channeled towards required infrastructure development and economic growth. A poor credit score and rating downgrade are other concerns from a macroeconomic perspective. Nonetheless, while many investors are deterred from investing in the economy on account of political problems, Mobius sees a democratic process in place, with the younger generation getting involved and working towards the betterment of the economy as a whole.
EZA offers exposure, stocks to watch
The US-traded iShares MSCI South Africa ETF (EZA) offers investors exposure to the emerging market of South Africa by investing in securities of companies that are based in the nation. Broad-based multinational internet and media group, Naspers (NPSNY) (NPSND) commands a 22.6% weight in the EZA portfolio, followed by integrated energy and chemical company Sasol (SSL) and Standard Bank Group Ltd (SBGLF) (SGBLY) which command a 5.1% and 4.9% weight in the EZA portfolio, respectively.
The ETF has returned 15.9% to investors so far this year (as of September 18), with Naspers’s N-shares leading the performance with a 51.6% rise, followed by Exxaro Resources Limited (EXXAY) which was up 45.7% YTD. Stocks of Shoprite Holdings Limited (SRGHY) (SRHGF) and BID Corporation Limited (BPPPF) lifted consumer staples performance by 11.83%, recording +28.8% and +30.7% price returns, respectively YTD.
From a valuation perspective, while Naspers now looks quite expensive, Sasol is currently trading at a P/E of 11.28 (against a materials sector average of 19.3). Exxaro Resources, Shoprite Holdings, and BID Corp are currently trading at 6.35, 20.43, and 26.07 P/E against sector averages of 6.5, 21.38, and 21.38, respectively. Standard Bank Group is currently trading at a P/B of 1.69 against a financial sector average of 1.8 P/B.
For further views on South African stocks, read our earlier account, The 10 South African Powerhouse Companies In The Forbes Global 2000.
