Ramaphosa’s reform plans boost investment

Asset manager Abax Investments has increased exposure to South African equities, encouraged by President Ramaphosa’s economic-reform plans, but warned that investors would want to see results before getting too excited.

Since the May 29 election that stripped the ANC of its parliamentary majority and forced it to form a coalition with rivals, South Africa’s benchmark index has climbed 2.4% in rand terms, outperforming the 0.2% increase in the MSCI’s Emerging Markets Index.

The Abax Equity Prescient Fund, which only has holdings in South African equities, has increased 7.3% so far this year compared with a 3.9% jump in the nation’s benchmark gauge for shares.

In that period, the fund manager has raised its exposure to stocks in companies that operate in South Africa — rather than Johannesburg-listed firms with businesses elsewhere — to 47%.

The top stock picks are retailers Shoprite, Pepkor, and Woolworths, said Justin Hollis, a portfolio manager at the Cape Town-based company with R100 billion under management.

These, together with some other South Africa-focused mid-cap stocks, comprise 18% of the Abax Equity fund – the highest this proportion has been “for many years,” he said.

“While we are not naïve about the inevitable challenges of operating a coalition government, a positive outcome has emerged with the government of national unity raising the prospect for more market-friendly reform, stronger economic growth, faster fiscal consolidation and employment creation,” Hollis said in emailed comments. 

Addressing lawmakers last week in his first major policy speech since the election, Ramaphosa said his new multi-party administration will prioritize economic growth by tackling structural reform, fixing badly run municipalities, cutting red tape and ramping up infrastructure investment by turning South Africa into a “construction site.”

“The president’s focus on infrastructure development, cost of living, improved policing and structural reform bodes well for South African citizens, corporates and our domestic equity market,” Hollis said.

Abax’s upbeat view matches that of a survey of 17 local fund managers by Bank of America. About 82% of respondents said they expect more buys than sells in the next 12 months, compared with 65% who held that view in June. 

Banking, apparel retail, and software are the preferred sectors, and 88% of respondents would be overweight in domestic stocks in the next 12 months, according to the survey conducted July 5-11. 

Abax sees construction business Raubex, electronics firm Reunert, manufacturer and distributor Bidvest, and lenders, including FirstRand, Absa, and Standard Bank, benefiting directly from Ramaphosa’s focus on infrastructure development and more renewable energy.

Hollis said execution is now key for the new coalition government, which comprises the ANC and the pro-business Democratic Alliance. 

South Africa needs “continued momentum in private-sector participation in energy and logistics, a stable regulatory backdrop, greater accountability within key public sector functions, job creation and higher economic growth,” he said.