The markets gave enthusiastic approval to early — and it must be stressed “early” — efforts at building a workable government of national unity (GNU). At market opening on Tuesday, investors, after the long weekend of political pondering, reinforced a brittle rand, with optimists suggesting the currency could break below R18/$. But there is still much to be ironed out — including divvying up key cabinet positions — before a more authoritative verdict comes in. Raw rhetoric is being hurled from the fringes; it can be a dangerous time.
Still, the JSE has been patiently waiting for a chance to rally around its rump of much-maligned South Africa Inc stocks. Tuesday’s frothy opening might prompt mutterings of a temporary relief rally, especially by the pessimistic punters who hedged the election outcome by chucking capital into offshore stock markets and currencies.
On the other hand, it’s a glorious “I told you so” moment for deep-value acolytes who grasped the opportunity to buy quality South African companies on giveaway multiples and deep discounts to intrinsic worth. One top asset manager articulated the happy situation succinctly on social media platform X: “We have been quietly building South African domestic equity for two months. It’s the first time we have been overweight in a decade. Balanced funds have brought back currency as well. GNU is potentially a momentous positive change for South Africa, and hoping negotiations continue constructively from here.”
For now, the currency and equity markets are giving the politicians the benefit of the doubt. At the time of writing, the JSE’s financial index — which might be the best barometer for large South Africa Inc businesses — was up 5%. The all share index was up only about 3% because of muted interest in large global stocks such as Richemont, Prosus, Anglo American, BHP, AngloGold, AB InBev, Glencore and Nepi Rockcastle. There were pronounced declines in all these stocks in early Tuesday trading.
It’s a glorious ‘I told you so’ moment for deep-value acolytes who grasped the opportunity to buy quality South African companies on giveaway multiples
What might be fuelling investor interest in local stocks is the realisation that the GNU really does not need to usher in new plans to boost economic growth at a sprightly pace. The last thing anyone wants is the ANC, at the outset, squabbling with its coalition partners about economic intricacies.
In truth, if the current load-shedding hiatus can hold through winter and the government can show progress in finding a longer-term energy supply solution, the impact on company earnings (and by inference, corporate tax collections) as well as investor sentiment (particularly the offshore variety) will be meaningful. Then any successes in getting the railways back on track, unclogging the ports and working on revitalising infrastructure would add another great dollop of positivity to proceedings.
Imagine local industrial and financial services companies operating in an environment where GDP was closer to 4% ... even 5%?
Perhaps developments can be overinterpreted at this delicate juncture. But it is encouraging to see the leading banks — FirstRand and Capitec — surge more than 7%, and life assurer Old Mutual skitter up almost 9%.
Perhaps even more telling was that retail companies on the JSE, almost without exception, advanced confidently in the GNU dawn. In our recent cover story, a few market analysts identified the retail sector as being likely to offer the first signs of foreigners buying the South Africa Inc story once more. The very shares they cited — Clicks, Mr Price and Shoprite — were all top gainers.
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