Abax Investments Ltd. has boosted its exposure to South African equities, driven by President Ramaphosa’s economic reforms. Since the May 29 election, South Africa’s benchmark index rose 2.4%, outperforming the MSCI’s Emerging Markets Index. The Abax Equity Prescient Fund increased by 7.3% this year. Top stock picks include Shoprite, Pepkor, and Woolworths, reflecting optimism about market-friendly reforms and economic growth under the new coalition government.
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By Khuleko Siwele
Asset manager Abax Investments Ltd. has increased exposure to South African equities, encouraged by President Cyril Ramaphosa’s economic-reform plans, but warned that investors would want to see results before getting too excited. ___STEADY_PAYWALL___
Since the May 29 election that stripped the African National Congress 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 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 Holdings Ltd., Pepkor Holdings., and Woolworths Holdings Ltd., said Justin Hollis, a portfolio manager at the Cape Town-based company with 100 billion rand ($5.5 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 Corp. 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 most 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.
In the week through Friday, South African exchange-traded funds received net inflows of $16.4 million, the most among emerging markets in Europe, Middle East and Africa after Saudi Arabia, according to data compiled by Bloomberg.
The bulk of that amount — $13.5 million — went into equity-focused funds.
Abax sees construction business Raubex Group Ltd., electronics firm Reunert Ltd., manufacturer and distributor Bidvest Group Ltd., and lenders including FirstRand Ltd., Absa Group Ltd., and Standard Bank Group Ltd. benefiting directly from Ramaphosa’s focus on infrastructure development and more renewable energy.
Hollis said execution is now key for the new coalition government that comprises the ANC as well as 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.
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