Anglo Revamp, Unity Government Seen Igniting South Africa Stocks
(Bloomberg) -- A business-friendly coalition government and plans by Anglo American Plc to spin off one large subsidiary and possibly list another may trigger a sustained rally in South African stocks, the head of the main local bourse said.
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Even with the turmoil currently running through global stock markets, these developments are poised to snap South African equities out of more than a decade of torpor caused by economic stagnation and collapsing power and logistics services, said Leila Fourie, the chief executive officer of JSE Ltd., which runs the exchange.
Three months without the power cuts that have plagued the country since 2008 has improved the economic outlook and Anglo’s plans will boost trading, she said in an interview on Wednesday.
“We’ve seen an improved investor sentiment and a shift toward South Africa and that was largely hinged on the macro optimism on political stability and also largely on the stability in our electricity,” Fourie said. Investors who were underweight on South African stocks have shifted to neutral and if the new government performs, will upgrade to overweight, she said.
South Africa has its first coalition government since the 1990s after the African National Congress lost the majority it has held in parliament since apartheid ended, in May’s election. That forced the ANC to appoint ministers from other parties including the business friendly Democratic Alliance to the cabinet.
Investors have welcomed the broad coalition, sparking a rally in South African local-currency bonds. They have made dollar returns of 8.25% since the election, the best in a Bloomberg index covering emerging-market sovereign debt. Stocks could follow, especially if the new government pushes ahead with economic reforms, according to Fourie.
“We have a number of stocks that are deeply undervalued,” she said. “Investors are starting to see that opportunity emerging as the government of national unity is stabilizing and building more and more confidence.”
Anglo American
Further out, trading could receive a fillip as Anglo, the mining company founded in Johannesburg in 1917 and which once dominated the stock exchange, reacts to a failed takeover bid by BHP Group Ltd. The company plans to spin off its 79% stake in Anglo American Platinum Ltd., a company valued at more than 160 billion rand ($8.7 billion), and is considering an initial public offering, or sale, for De Beers, the world’s biggest diamond mining company.
“This could have a very large net-positive effect on the JSE’s market cap, our trading value, and diversification opportunities,” she said.
Any rally would come after a decade in which the country’s main stock index has lost 7% in dollar terms while key US stock indexes have more than doubled.
Already there are signs that South African stocks are becoming more favored than emerging market peers. On Aug. 5, when stocks sank globally, the FTSE/JSE Africa All Share Index slipped just 1.2% while the MSCI Emerging Markets Index plunged 4.2%.
“There is a window of opportunity. I think South African stocks are undervalued,” Fourie said. Better sentiment could translate into “improved valuations and, of course, higher index values,” she added.
More companies are looking to trade on the bourse in Johannesburg, which is adding four listings this year, she said. Another sign of increased confidence is the 79 billion rand companies secured in capital raises in the first six months of this year, compared with 4 billion rand in the same period in 2023, she said.
--With assistance from Gordon Bell, Ana Monteiro, Phil Serafino, Colleen Goko and Joumanna Bercetche.
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