24-Oct : SA Market Outlook

South African market sentiment:

• Market generally of the view that the geopolitical situation potentially won’t escalate
• A very uncertain macro environment means that people are looking for safe places to hide in an idea-scarce market
• Banks are still seen as a relatively safe place to hide
• Clients are still cautious about retail stocks, but we will be loading up the truck if global rates start to roll
• On the mining and energy front, clients agree with our bullish energy theme, but struggle with Sasol and Exxaro bottom up. M&A/poor capital allocation at the latter is the key concern
• Clients are more patient on improving rail volumes than we thought would be the case, and generally believe this will play out
• SA investors are nervously underweighting the SA gold stocks and are looking for opportunities across the PGM’s (Platinum Group Metals)
• For those that want to address this, the bottom-up answer isn’t obvious, but we’re sticking with Gold Fields (GFI)
• The consensus view is that we’re going to see a decent supply-side response to depressed PGM prices, which will drive up prices and, in time, the stocks
• On the telco front, it’s clear that Vodacom and MTN look cheap, but we didn’t get a sense that investors are about to dive in
• Life Healthcare is definitively preferred when it comes to the hospitals
• Elevated bond yields continue to crowd out the property market, although there are clear signs of improving fundamentals