Despite the government shooting itself in the foot, South Africa has a surprisingly positive investment climate with local assets, particularly government bonds, promising attractive returns.
Anchor Capital CEO Peter Armitage told Newzroom Afrika that most of the risks South African investors must deal with come from the country’s government.
“A lot of the risks, as the Reserve Bank has pointed out, relate to the government’s actions. The government has been shooting itself in the foot,” Armitage said.
In particular, the country has made poor foreign policy decisions in remaining aligned with Russia and antagonising the United States.
Armitage also highlighted the country’s deteriorating infrastructure, load-shedding, and general government inefficiency as risks to local investments.
However, he said, “We have a moderately positive outlook for the South African stock market. Some opportunities only come around once a decade or so.”
Rising interest rates have put a lot of pressure on the South African economy and consumers. But, in Armitage’s view, this also makes South Africa a good investment destination.
“High interest rates keep South Africa an interesting investment destination from a government bond perspective and for fixed-income investors.”
South Africa’s local government bonds offer an effectively risk-free annual return above 10%.
Many stocks listed on the Johannesburg Stock Exchange are more heavily influenced by global economic performance than the local economy.
“The South African economy is pretty poor, but the investment market has shares in companies that operate globally and earn revenue in foreign currencies,” said Armitage.
Many JSE stocks are more heavily impacted by the performance of the Chinese economy than South Africa’s, with large mining companies, Naspers, and Richemont, heavily exposed to China.
Thus, what is important for the performance of the JSE is the Chinese economic recovery in 2023 and not that of the local economy.
A weakening rand is also good for many companies on the JSE, which generate revenue in stronger currencies.
The weakening currency also benefits South African investors with exposure to foreign stocks in Europe or America, as their returns will be greater in rand terms.
“This makes the local investment climate an interesting one and, I guess, a surprisingly good one,” said Armitage.