ANALYSTS are upbeat that the JSE and SA Inc will rebound on the back of receding load shedding and expectations that the the ANC will be less radical as it forms a Government of National Unity (GNU) with other political parties.
The JSE Top-40 index closed 1.3% higher on Wednesday, with “investors keenly awaiting indications of the new government formation ahead of lawmakers being sworn in and the presidential election” today, according to analysts at Stanlib.
After the ANC announced that it was inclined towards forming a GNU following the May 29 elections, the rand has been performing positively.
SA Inc stocks on the JSE have also been on the rebound following successive losses earlier this week.
“There appears to be a rally in ‘SA Inc’ shares due to optimism surrounding the government coalition talks after the elections,” Roy Topol, portfolio manager at Cratos Asset Management, told Business Report in an interview yesterday.
With local stocks such as The Foschini Group rallying earlier this week, analysts were upbeat that the post-electoral outlook and receding load shedding impact will buoy more SA Inc stocks.
Moreover, Transnet, which has been rocked by port inefficiencies in the past few months, said this week that it was on a recovery path to fewer disruptions of logistics and the handling of imports and exports.
“Consider that last year, retailers’ earnings were severely impacted by load shedding and other issues. So the retailers’ earnings growth is coming off a low base,” added Topol.
NinetyOne analysts said this week that “a sharp reduction in load shedding helped factory activity in April” after contracting in the prior month.
However, the Coronation Fund Managers head of fixed interest research, Mauro Longano, forecast an average of one to two stages of load shedding for the rest of the year.
With today’s swearing in of parliamentarians and their subsequent election of the next president, the markets are expected to be a lot calmer as the GNU would bring certainty of the continuation of economic policies.
However, David Lerche, chief investment officer for Sanlam Investments, warned of an unpredictable outlook of South Africa’s local equities until the electoral framework is more certain.
“While both the short-and medium-term outlook for local politics and the impact this will have on our economy remain unpredictable, our base case remains that South Africa will muddle through as we've done for decades,” he said.
Nonetheless, and amid all the uncertainty, Lerche said he believed that a diversified investment portfolio will help spread any potential downside risks.
“The value of an appropriately diversified portfolio cannot be overstated. A case in point is that over the seven trading days after the election, while the overall SA equity market fell by 2.2%, our SA equity portfolio declined by only 1.1%,” he said.
Last month, South African fund managers surveyed by Bank of America said they expected local equities to rally post the May 29 elections, with a preference tilted towards domestic stocks.
Bank of America said in its South Africa Fund Manager Survey that “the focus has shifted from resources to domestics”, with a higher net 68% saying they would “overweight domestic stocks but still a 50/50 tussle on whether it’s too early to buy interest rate” sensitives.
“Political risks rising, but 74% expect domestic stocks to rally post elections May 29,” Bank of America said.
BUSINESS REPORT