2023 is set to be a challenging year for markets with recession fears, continued interest rate hikes, and geopolitical risks.
As a result, Sanisha Packirisamy, an economist at Momentum Investments, expects global equity markets to be under pressure during the larger part of 2023.
“There could be some relief for equities towards the latter part of the year as markets start looking beyond the downward growth cycle,” she said.
The good news for local investors is that South African equities have an attractive valuation underpin, both within the global universe and against its history.
“This should stand it in good stead during potential global equity drawdowns, but particularly during subsequent recoveries when global risk appetite rises,” Packirisamy said.
“Even more so, as South Africa is the fifth most under-owned market within global emerging market equity funds.”
South African equity valuations remain cheap against emerging markets and even more so against developed markets.
“Research by SBG Securities highlights that apart from insurance, real estate, banks and capital goods, all MSCI SA sectors are currently trading at a discount to MSCI EM,” she said.
“In our view, a lot of bad news is currently priced into SA equities, enhancing the future return potential from current levels.”
Many South African analysts and fund managers shared Packirisamy’s view and selected local shares as their stock picks at the beginning of the year.
Here are five stock picks, all listed on the Johannesburg Stock Exchange (JSE) from guests on Business Day TV over the last week.
Wayne McCurrie from FNB Wealth and Investments – FirstRand
FirstRand is the largest financial institution by market capitalisation in Africa and owns FNB, RMB, Westbank, and other big financial service providers.
McCurrie said South African banks are very cheap because they have not shown much movement for a while.
“I would pick a bank, and why not pick my own bank, FirstRand/First National Bank,” he said.
Bright Khumalo from Vestact – Coronation Fund Managers
Coronation Fund Managers is a South African third-party fund management company headquartered in Cape Town.
Khumalo said Coronation looks relatively cheap, even after a run in the share price over the last few weeks.
“You will also get a decent dividend from Coronation because of increased earnings,” he said.
Jacques Pretorius from Sinayo Securities – Motus
Motus is South Africa’s leading automotive group and provides automotive mobility solutions and vehicle products and services.
Pretorius said there had been an increase in car sales and demand, which the market has not priced into the Motus share price.
“Motus looks very cheap. It is a quality operation with a strong return on equity and good cash generation,” he said.
“It is currently trading at around R116 per share, and it can easily reach R130 per share.”
Jaco Eager from Rand Swiss – Renergen
Renergen is an emerging integrated renewable energy producer, delivering helium and domestic natural gas.
After a few setups over the last two years, the company is now starting to produce natural gas, with helium to follow soon.
The company’s Virginia Gas Project received Strategic Integrated Project (SIP) status, which makes it easier to get approvals from the government.
“It is R23 per share now. I see at in the mid-thirties a year from now,” Eager said.
Chantal Marx from FNB Wealth & Investments – Life Healthcare
Life Healthcare Group is the second largest private hospital operator in South Africa, with 6,500 beds.
Marx said the great thing about healthcare is that it is quite a defensive stock in a market where there is still risk.
Life Healthcare has also shown a recovery in surgeries, and its diagnostics business received a great boost from the approval of Alzheimer’s drugs in the United States.
“Life Healthcare is a good stock, both technically and fundamentally,” Marx said.