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Which stocks should you invest in for 2018?

Feb 04 2018 06:01
Angelique Ruzicka

Johannesburg - Investors may only now be putting their emotions in check following the Steinhoff scandal, which broke last year. Allegations surfaced that the business was involved in accounting fraud which involved, among other things, overstating its financial position.

If you are one of the investors who experienced a knock to your portfolio following this debacle, you’d be forgiven for wondering “is there another Steinhoff?” and “can I trust the big corporates?”

Industry commentators are uncertain about whether there could be another Steinhoff this year.

However, there are a few companies that are certainly giving investors cause for concern and, just recently, there’s been some worrying news that could create the same type of jitters in the market as Steinhoff did.

In Viceroy’s grip

On Tuesday, Capitec’s share price fell in response to a damning research report by Viceroy Research titled Capitec: A wolf in sheep’s clothing. It called for the SA Reserve Bank (Sarb) to place the bank under curatorship. Viceroy claims the bank is in trouble thanks, in part, to its unsecured lending practices.

Sarb had to make assurances that the South African bank is a solvent, well-capitalised institution with adequate liquidity.

However, commentators reminded investors that credibility of sources was key too.

Floris Slabbert, head of distribution at Ecsponent Financial Services, says Capitec does carry some speculation, as does pharmaceutical company Aspen.

“But you have to ask yourself ‘who are the people providing this information?’ If you see someone making accusations, find out if they aren’t perhaps the ones shorting that stock.”

Aspen investors are waiting with baited breath now that a report from Viceroy Research is rumoured to dish the dirt on the company’s financial reporting as well.

However, not everyone is convinced that it will result in another ripple like the one Steinhoff created.

Says Nesan Nair, senior portfolio manager at Sasfin Securities: “It is hard to say if there will be a repeat of the Steinhoff event. My personal view is ‘not’. Steinhoff’s irregularities were very specific to them and there was a series of events that gave rise to Steinhoff’s demise and we haven’t seen this within Aspen.”

Not all doom and gloom

While there may be some concerns over the solvency of some big corporations, there might be some positive views for investors for 2018. Nair believes a few areas could do well, not just this year but in five or 10 years. They include technology stock Naspers (with its exposure to Chinese business Tencent) and South African industrials such as Barloworld as well as Imperial and Bidvest. He has faith in South African insurance companies.

“I think we’ve had, in the last three years, a serious crisis of confidence (particularly by the consumer). They were not upgrading their homes, buying homes etc. That was down to uncertainty around government policy and corruption at state-owned enterprises. But now, with the potential for a cleanup, with the hearings on Eskom and state capture and the prospect of a resumption of good governance, that could inspire more confidence in people.”

If all goes according to plan, Nair says economists are predicting South Africa could produce growth of above 3%, if consumer confidence returns.

“So South African-focused stocks will do well as a result if that were to happen.”

Stocks to avoid

Nair believes it may be too early for investors to put money into the construction sector.

“It’s in the throes of a dying cycle and there are several that probably need to go through a restructure. So I’d avoid those. I would also avoid some of the traditional manufacturing businesses such as ArcelorMittal – there are some structural issues in that business coming out of China.”

Nair is wary of any businesses forging ahead on the African continent. “The likes of Nampak and, to an extent, MTN’s African business – I think will chug along until there is some meaningful growth in Africa,” explains Nair.

The way forward

With a shake-up at Eskom, an investigation into state capture finally on the cards and president-in-waiting Cyril Ramaphosa making the right noises and promises at the World Economic Forum in Davos, things are potentially looking up for South Africa. But there is much to do and the consensus is that 2018 will be a busy year.

Ecsponent’s Slabbert says Ramaphosa is a businessman and his moves have been very structured.

“The feedback and press at Davos was well managed. Because of this new approach it will be an active year for any investor.”

However, he cautions investors to quiz financial advisers, asset managers or stockbrokers about their investment strategy.

Slabbert believes it’s important for investors to understand their portfolio and the reasons why certain stocks are in it. Information is easily available online on fact sheets. With this at your fingertips, it should be relatively easy to grill your adviser about why he or she prefers one stock and strategy over another.

“The financial adviser and client should be seen as a partnership – not a service. You can’t hold someone accountable if you don’t pay attention to the strategy,” he says.

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