Many South African stocks has seen great interest in 2018 following changes to the political landscape. The JSE has seen many investors return, and a general increased optimism surrounding the South African economy. Rukayat Yusuf, economist for Sub-Saharan Africa, expects economic growth in South Africa to improve to 1.8% in 2018 and 2% in 2019.
“We have experienced exciting changes in South Africa that only three months ago did not seem possible,” says Roger Williams from Centaur Asset Management. “We believe that in the medium-term growth will improve, underpinned by improved confidence and lower long-term interest rates.”
Williams expects the construction industry to greatly benefit from this improving outlook. “Construction companies could face the trifecta jackpot of higher revenue growth, margin growth and rating increases making them outstanding performers,” Williams says. “The blue chip of the sector, WBO, will benefit, but for the more adventurous private investor there are a number of small capitalisation construction stocks which could give multiple upside, albeit with higher risk.”. Williams further predicts the property industry to greatly benefit as a result of the lower cost of capital.
However, despite this positivity, it is still important to be selective in terms of South African stocks. “Domestic cyclical stocks have already moved up dramatically,” he points out. “The banks are up 40% to 50% in the last three months, retailers like The Foschini Group, Truworths and Mr Price have also gained a similar quantum. So they have already discounted a rosier future.” He continues, “We haven’t seen any stimulus to consumers, so they may be more confident, but they won’t be feeling that much wealthier,” Williams points out. “There was no tax reduction, no interest rate declines, and we saw the VAT hike. So these share prices moves seem a bit premature.” Willaims further argues that the strengthening of the rand and implementation of carbon taxes will detrimentally impact exporters who are also major carbon emitters.
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