Coronation says weak growth is strangling local stocks

The JSE building in Sandton, Johannesburg. File photo

The JSE building in Sandton, Johannesburg. File photo

Published Apr 11, 2024


CORONATION Fund Managers has forecast that SA Inc will continue to struggle against constrained economic growth ahead of this year’s elections as the performance of locally focused South African stocks has been poor.

South Africa is headed for a key election that could result in a shake-up of the governing ANC’s majority in Parliament, with many analysts and poll surveys predicting a coalition government post the elections.

Coronation portfolio manager Charles de Kock yesterday emphasised that there would be no easy fixes for South Africa’s current infrastructure challenges.

“While we don’t have the ability to forecast the outcome of the election more accurately than what the polls predict, our view is that the problems faced by the South African economy cannot be fixed quickly,” he said.

“Even if the correct decisions are taken and implemented it will take years to fix the problems in power, rail and water.”

Although the elections have been causing uncertainty and apprehension among investors, it is South Africa’s ageing infrastructure that has brought about load shedding, and congestion at the country’s ports that have had a negative impact for local manufacturers and mining companies.

“The South African economy, hampered by ageing infrastructure and poor maintenance, has continued to struggle,” De Kock said.

“With inadequate power supply, inefficient rail transport and harbours struggling to move exports, the outlook for growth remains constrained.”

As a consequence of this, De Kock said JSE-listed “shares linked to the local economy, therefore, had to contend with an extremely difficult low-growth and rising cost” environment.

The 166 company shares were on the decline on the JSE during the first quarter period as against about 109 stocks that strengthened during the quarter.

There were about 17 stocks that traded unchanged, with market watchers saying SA Inc’s fortunes on the JSE this year have been made worse by the prevailing political and economic uncertainty.

“The performance of ‘SA Inc’ stocks has been poor. Many of these stocks are trading at very low multiples and appear cheap, but we are wary of falling into value traps,“ De Kock said.

As a result of this, Coronation’s SA equity portion of its portfolios remained “tilted heavily in favour of global businesses that are listed” on the JSE.

However, Coronation said some domestic stocks were gaining market share from competitors while a few others had carved out niches of growth.

Turning to South African bonds, Coronation said these remained elevated but were a reflection of the government’s poor fiscal position.

“Government debt is too high and in a low-growth economy the tax take will unfortunately not rise by enough to counter the spending needs of the government. We hold some government as well as corporate debt in the domestic market, but we are wary not to take duration risk too high.”

Nedgroup Investments said this week that the performance of South Africa’s equities was closely tied to its bond market, which were currently showing volatility and sensitivity to global rate movements.

“A potential easing of US rates could, therefore, provide a catalyst for a rally in South African domestic assets, despite the SA Reserve Bank’s current monetary policy direction,” said Nedgroup Investments in its Pulse report for March.

Asset and fund managers have been nudging investors towards international options to spread their risk from the South African headwinds.

Coronation said its multi-asset funds were maintaining “full exposure to global assets” although these included “significant holdings” in global businesses listed on the JSE.