From zero to hero: South
Africa is hot among overseas investors at conference
Fin24
8 April 2022
The Bank of America Securities'
annual Sun City Conference had more investors upbeat about SA this year.
- There was a much more upbeat
sentiment about South Africa among international investors as this year's
Bank of America Securities annual Sun City Conference.
- Some 92 institutions from
outside of South Africa attended, and requested more than 500 meetings
with local companies.
- High commodity prices and
rising interest rates have made SA more attractive as other emerging
markets peers fade.
Sustained
high commodity prices, rising interest rates and the credit quality of SA banks
are convincing international investors to put SA at the top of their emerging
markets list again.
This as
other emerging market alternatives, like Russia (following the invasion of
Ukraine) and Turkey (which is facing a currency and debt crisis) have faded
away.
Bank of
America (BofA) Securities hosted local and international investors at the
annual Sun City Conference at the end of March. Some 78 local corporates
attended, and 92 offshore institutions requested 520 meetings with the South
African firms.
"It
made sense with South Africa being part of the new commodity world order,"
said John Morris, SA strategist at BofA Securities. "Elevated commodity
prices are supportive for South African domestic assets for now," he
added.
Morris
said investors who came to the conference were looking for areas where there
are still opportunities as global growth is slowing down after the buoyant 2021
recovery. And South Africa had a new appeal given the supply constraints
created by sanctions against Russia, since it is one of the biggest commodity
producers in the world.
He said
while SA has its own macro-economic and structural problems, investors were
more upbeat about its economic health this year.
Tatonga Rusike,
the economist at BofA Sub-Saharan Africa, said investors and economists are
"cautiously positive" about SA's near-term outlook. They expect the
positive terms of trade, which benefitted from the commodity price boom in
2021, to continue.
"Those
high commodity prices are positive for fiscal revenues in the near term,"
he said, adding that commodity-linked tax collections could surprise on the
upside again. Last week, SARS announced collected R1.564 trillion for
2021/22, beating the budget estimate of R1.547 trillion.
Also last
week, credit rating agency Moody's upgraded South
Africa's ratings outlook from
"negative" to "stable", saying that South Africa's fiscal
position has "markedly recovered" from the pandemic thanks to high
commodity prices, which boosted tax revenue, and government's fiscal
consolidation measures, including that it was able to keep growth in the public
sector wage bill to 1.6%, well below inflation.
"Indeed,
over the last two fiscal years, the government has shown it was able to
re-prioritise its spending while staying committed to fiscal consolidation,
which Moody's expects will remain the case going forward."
Resources,
telecoms, banks in the spotlight
Because
of this upbeat commodity price outlook, investors are falling more in love with
precious metals miners. These are the companies that delivered the R182 billion
unexpected tax windfall for SA in 2021, allowing the government to fund the
R350 grant extension without additional debt and avoid many tax increases this
year.
Morris
said resources companies present at the conference reported a continuation of
strong demand, although they are concerned about a global slow-down as the year
progresses.
Offshore
investors were particularly interested in resource stocks that recovered slower
than their peers in 2020. But all investors are wary of rising input costs in
the sector, especially if there is another oil price spike soon.
"For
Bank of America buy-rated stocks across the market, we expect returns of over
20% in 12 months. Returns, though, are at risk in the second half of the
year," said Morris.
Other
sectors that had more investors' attention are telecommunication, technology
and financial stocks. The spectrum auction and limited fibre infrastructure in
SA have investors convinced that mobile operators are poised for more growth.
The
financial sector, particularly banks' credit quality, also performed ahead of
investors' expectations in 2021. Investors are also watching how banks will
execute their plans to enter new markets as more want to increase exposure in
the African continent.
Record
portfolio inflows
BofA said
portfolio inflows into SA in the past six weeks had been one of the highest
since 1994.
Apart
from investors who reviewed their portfolios putting more money into local
assets, SA also benefitted from the fact that many companies have upgraded
their earnings expectations.
"South
Africa has become more attractive relative to other emerging markets either
because of unconventional monetary policy in Turkey or the Russia-Ukraine war.
We've seen increased inflows for the SA government bonds and equities,"
said Rusike.
And SA
government bonds have become more attractive because of the rising interest
rates. Morris said BofA's London team is "constructive" on SA's
bonds, and so are many local fund managers.
"The
risk is appealing, particularly from a risk-reward point of view. [Even as] the
[JSE's] All-share index has been performing well this year, the returns from
bonds remain attractive. They are like equities," said Morris.
He said
the strong rand has also played a huge role in creating a positive sentiment
around SA assets.
The local
currency is currently trading around R14.80, from around R16/$ at the start of
the year.
When BofA
asked investors what they consider to be the key risks in SA, not one person
ticked the "volatile rand" box.
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