We noted last week, in an article titled The strengthening Rand and investing overseas, that local equities have outstripped global markets by huge margins since April 2020. This view is reaffirmed in an article by Patrick Cairns in Citywire:
“Allan Gray, Coronation and Prudential – who between them manage nearly a third of all the assets in South African multi-asset unit trusts – are all positive on the outlook for South African equities.
During a panel discussion at the 2021 Investment Forum, hosted by The Collaborative Exchange, portfolio managers from all three firms picked local equity as their current preferred asset class.
Pallavi Ambekar of Coronation notes: ‘We initially started picking up global equity exposure, simply because global economies would come out of the crisis a lot faster than South Africa. But, as we moved through the year, we saw South African companies reporting much better results than even our best expectations. So, valuations were looking extremely attractive.’
Prudential’s Leonard Krüger says: “We are now as low in global equities as we’ve been over last few years, and as high as we have been in South African equity”.
‘You’re seeing a phenomenal trade surplus and high profitability in the mining sector, and hopefully that filters through into some of the adjacent sectors. ‘But you still have this narrative of extreme pessimism about South Africa’s longer-term outlook, and so valuations are not that stretched in our opinion at all. So, when we think about asset allocation at the moment, South Africa is where the opportunity lies, in the equity space particularly.’
Allan Gray, which has been positive on the local opportunity for longer than either of its peers, also believes there is good reason to stay ‘optimistic’ about the asset class.
‘On a bottom up basis, we like some of the banks, hospitals and South African industrial companies,’ said Tim Acker. ‘They do have South Africa risk, but that’s also where you are getting the most attractive valuations. On the risk-reward basis, there is a lot of upside there.’
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