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UBS bets on Ramaphoria, says strong ANC win could trigger rally for SA assets

Apr 29 2019 19:07
Adelaide Changole

A South African election outcome that sees the ruling party win 55-60% of the vote could boost shares in banks and insurers, retailers, locally focused industrial companies, property firms and telcos, according to UBS Group AG.

A victory of that magnitude for the African National Congress in the May 8 poll is a result seen by many as strengthening President Cyril Ramaphosa’s hand and his ability to carry out investor-friendly changes. An opinion poll released Monday showed the ANC is likely to secure 61% support.

UBS last week listed two products on the Johannesburg exchange that allow investors to position for a new surge of "Ramaphoria" after the election. A strong showing for the ANC may trigger a rally in South African assets on expectations of greater policy certainty, better management of state-owned companies and an improved outlook for growth, Aveshen Pillay, director of equity derivatives sales and structuring at UBS in Johannesburg, said in an emailed response to questions.

UBS has listed a basket of 20 stocks correlated to rand strength, including financials, retailers, industrials, property and telcos. The second of the six-month products is based on a group of 10 domestically focused, "South Africa Inc." stocks tipped to benefit most from lower bond yields, a stronger currency and improved growth and consumer sentiment.

While South African equities look expensive, "opportunities exist within sectors such as financials and property stocks benefiting from lower bond yields, and retailers and food producers on attractive valuations relative to history and exposed to the consumer," Pillay said.

South Africa’s benchmark index dropped 0.4% in Johannesburg Monday, trimming its advance this year to 11%.

Here are some of UBS’s preferred South African stocks in the lead-up to the election, detailed in an April 16 marketing presentation:

Banks:

Absa Group, Capitec Bank Holdings, FirstRand Ltd., Standard Bank Group Ltd. "Expect lower yield environment and lower cost of equity to support performance for local banks. Banks should also benefit from improvement in consumer sentiment and growth outlook. Policy clarity could provide additional driver for corporate borrowing and investment."

UBS chart

Insurers:

Discovery Ltd., Old Mutual Ltd. and Sanlam Ltd. To benefit from the "lower-yield environment, improved consumer sentiment and strong market performance".

Industrials and telcos:

Bidvest Group Ltd.; should benefit from a resumption of government contracts, with improved growth outlook supporting logistics business. Multichoice Group Ltd.; seen benefiting from improved domestic consumer sentiment and growth outlook. Vodacom Group Ltd.; most exposed to the South African consumer, with attractive valuations.

Retail sector:

Pick 'n Pay Stores Ltd., Shoprite Holdings Ltd., Truworths International Ltd., Mr Price Group Ltd., Clicks Group Ltd. and The Foschini Group Ltd. to benefit from improved consumer sentiment and growth prospects; sector has de-rated and is looking attractive relative to history. “Strong rand should help lower input inflation and support margins.”

Food producers:

Tiger Brands Ltd., AVI Ltd.; strong gearing to the local consumer should support the sector on improved consumer sentiment. "Expect to see additional benefit from currency strength and lower input costs."

Property:

Redefine Properties Ltd. and GrowthPoint Properties Ltd. Lower yields and a stronger rand should support share price performance in the short term; Longer term benefit from improvements in demand for property space.

Find everything you need to know about the 2019 National and Provincial Government Elections at our News24 Elections site, including the latest news and detailed, interactive maps for how South Africa has voted over the past 3 elections.

,election 2019

ubs  |  assets  |  stocks  |  elections 2019  |  investment
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