Market wrap up:
- Markets have been relatively quiet overnight due to the US Thanksgiving holiday. While the ceasefire in the middle east is good news, major Asian indices are down this morning, with China performing particularly poorly.
- The Nikkei is up (+58bps) following yesterday’s holiday, while the Hang Seng is down, with Tencent also experiencing losses (-1.34%). The ASX is up slightly (+20bps).
- Commodity futures are mostly up, but there isn’t much else to report in terms of major indicators. It’s unlikely that we’ll hold onto yesterday’s gains.
View on South Africa:
Looking ahead, there are suggestions that SA equities may deliver 20% in 2024. This is based on the idea that US inflation will decelerate to below 2.5% by 2H24, while global growth forecasts remain at around 3%. This is a consensus view, and China is actually performing well. We remain positive on global equities and believe that we are entering a regime that will suit stock pickers. There are indications of turning points in the economic cycle are accompanied by value outperformance. We remain overweight bonds and forecast >15% total return for SA bonds, with a US 10-year yield of 4% by end ’24.
We believe that lower bond yields should lead to EM outperformance in 2024, and SA equities on average re-rate 10% for a 50bps move lower in local rates.
Chemicals (Sasol), Banks (NED, ABG), Discretionary Retail (MTH, CFR), Property (NRP, GRT, RDF), and Telecoms (MTN) are most geared to declining bond yields and a strong ZAR. Defensive rand-hedges including BTI, ANH, Food producers (TBS), and Gold typically underperform.
Regarding SA, it’s now a consensus view that the loadshedding narrative will improve YoY, driving at least 1.5% GDP growth for SA. The charts show the opportunity IF we just get Transnet right. Transnet inefficiency alone has cost us 5% in GDP growth this year. Unfortunately, it looks like we’ve taken another leg lower, but there’s some optionality here.
In conclusion, SA looks well positioned on an absolute and relative basis, with a massive kicker IF government gets its act together. However, it’s tough to see this happening before elections.
