PSG Asset Management has advised investors to look at the glass as half-full than half-empty as it remained optimistic about the economic outlook and while business confidence rose to a one-year high.
The asset manager, with more than R50 billion of assets under management, yesterday presented its 2024 Outlook for South Africa, including possible market scenarios post-elections.
PSG head of equities Justin Floor yesterday said South African assets were under-owned and were ripe for outperformance, with institutional South African equity weights at lows while retirement funds were close to maximum offshore allocations.
Floor acknowledged a number of risks in local assets but said the existing opportunities far outweighed the risks, adding that investors could balance this by diversifying globally and look for opportunities in smaller companies.
He said as PSG they had probably become “incrementally more positive” on South African assets while the market was overly negative.
“We feel most investors are very cautious and negative about South Africa. They are worried about elections, they are worried about crime, they are worried about our infrastructure deterioration, and that's what we think is creating the environment where share prices are very cheap,” Floor said.
“So that's creating for us an entry point to buying some of these assets, which we think will be resilient and we'll actually do fine over the next few years. That's kind of our fundamental thesis.”
On the country’s economic outlook, Floor said they were optimistic that the energy constraints were lifting with units at Medupi and Kusile power stations coming online, while residential and business roll out rooftop solar installations, and the government opening Bid Window 7 of renewable energy procurement.
However, he said the persistently high interest rates were a serious headwind for the economy, but would recede from this year as the repurchase rate had scope to be reduced by 1 to 2.25%.
“We think the economic outlook will probably be less bad in the future. So it's not going to be good, but it'll be less bad. Interest rates might come off, and that will help,” Floor said.
“We think commodity prices will probably stabilise. We think Transnet issues will gradually improve. And we think Eskom and energy constraints should gradually improve.
“So, all of those things will add up together to be slightly better in the future, and that's a good story. So, you go from very bad to just neutral. That can actually be quite a good outcome.”
Meanwhile, the business confidence index (BCI) rose to a one-year high in January.
The South African Chamber of Commerce and Industry (Sacci) yesterday said BCI for December 2023 reached a notable 112.1 points, marking the second-highest level for the year, surpassed only by the January 2023 peak of 112.9 points.
Sacci said the BCI then increased marginally to 112.3 points in January 2024, potentially indicating a sustained elevation in business confidence.
Between December 2023 and January 2024, eight out of the 14 BCI sub-indices contributed positively to the overall BCI, two remained unchanged, and four had a negative impact. These combined movements led to a modest 0.2 index point improvement from December 2023 to January 2024.
Noteworthy short-term positive impacts in January 2024 were observed in increased merchandise imports, higher sales of new vehicles, a rise in inward tourism, and an uptick in retail sales. Conversely, reduced volumes of merchandise exports had the most significant negative impact.
Sacci economist Richard Downing said the economic landscape in South Africa presented several challenges for both the economy and the business community.
“Critical events such as Budget 2024 and the State of the Nation Address (Sona) are anticipated to play pivotal roles in shaping business confidence for the year 2024,”Downing said.
“South Africa's economic policymakers are confronted with numerous challenges, including achieving inflation targets, maintaining an appropriate monetary policy stance, and alleviating wage and price pressures.
“Fiscal tightening must align with the monetary policy stance, necessitating a restructuring of budgetary capacity to handle externalities, an expansion of the tax base through enhanced economic growth, and the mitigation of public sector debt. These considerations should take centre stage in Budget 2024.”
BUSINESS REPORT