Worst is over for South African assets – Old Mutual

Old Mutual Wealth investment strategist Izaak Odendaal said South African assets are bottoming out and have moved through the worst with a positive outlook for the second half of the year. 

Odendaal told CNBC Africa that South African equities performed poorly in the first half of 2023, with the benchmark JSE All Share Index providing negative real returns for investors. 

This was mainly due to the poor performance of Eskom’s generation fleet, resulting in record levels of load-shedding. 

Despite this, Odendaal said that the South African economy has proved resilient. “It is weak, but it is not collapsing. Despite its challenges, the local economy is not falling apart.”

The negative news has already been priced into South African assets, thus providing good value at cheap valuations. 

And so, there appears to be a bottoming out in South African asset prices, with the outlook for the rest of the year and into 2024 looking broadly positive.

He urged investors not to be too pessimistic about South African assets, adding that Old Mutual would maintain their overweight exposure to local assets. 

Odendaal’s comments broadly echo those of his CEO, Iain Williamson. 

Williamson said the company is“cautiously optimistic” about the country’s future with many positive developments.

South Africa faces significant challenges, including potential social unrest and a grid collapse. 

These are among the primary threats to South Africa and have the potential to do billions of rands worth of damage to the economy. 

“However, I think things are significantly more positive on a medium-term view,” said Williamson. 

South Africa is in a much stronger fiscal position than it has been and is showing signs of strengthening in the future. 

The outlook for the energy crisis is also positive, with the liberalisation of the electricity sector well underway. 

In the next two to three years, “load-shedding starts to improve, private sector generation comes on stream, and the fiscal outlook improves”. 

“We just need to get through the year and the elections in 2024,” said Williamson. “Once the country passes those hurdles, the outlook is better than it has been in a while.”

Old Mutual’s research indicates that South Africa avoided a recession in the first quarter and anticipates the South African economy will grow in 2023.