Piet Viljoen’s view on South African shares

In recent weeks, 48 companies listed on the Johannesburg Stock Exchange (JSE) have hit their worst share price in a year.

It raises the question of what is behind these share price declines and what is in store for these companies.

Piet Viljoen, portfolio manager of the Merchant West Investments Value Fund, told The Money Show that these stocks have one thing in common – they operate in South Africa.

Viljoen gave an honest summary of the challenges in South Africa, including:

• The country is governed by a party incapable of governing.
• South Africa’s monetary policy is of the tightest in the world.
• The country is suffering from extensive load-shedding and power cuts.
• South Africa’s global allies are some of the worst people in the world.

These factors created very challenging economic conditions, which filtered down to South African shares.

Companies which operate and generate revenue outside of South Africa, like Naspers and Richemont, have shown strong growth.

However, SA Inc shares are suffering. “Companies which generate most of their money in South Africa are operating under duress,” Viljoen said.

“Their earnings are under pressure, and their share prices reflect that. The worse it gets, the worse the selling gets.”

He explained that there is also a lot of emotional selling, which means there are very good companies with excellent management which are trading at low multiples.

Despite the value these companies offer, it carries great risk to buy shares when they are on their way down.

Viljoen added that South African companies have been cutting back on investments in the country for many years.

He explained that when the government imposes additional costs on businesses, the more they will reduce the cost of doing business. One way is to reduce employment.

“That is why South Africa has one of the highest unemployment rates in the world,” he said.

There is some good news. Viljoen said the valuations of many JSE-listed companies are so low they are becoming attractive.

“I think many South African companies have great management teams that can overcome the hurdles,” he said. “You get that ability for free at the current prices.”

He said these companies offer good value on a 5-year investment horizon. However, users may be able to buy them even cheaper in the short term.