SA investors still sceptical

Investors remain underweight on South African stocks, even after the ANC’s victory in this month’s elections, signalling scepticism about the prospect for economic reform, investment bank Morgan Stanley said.

The nation’s stocks have attractive valuations, according to the bank’s strategists, Marina Zavolock and Regiane Yamanari, who upgraded SA to overweight in March, citing depressed valuations, oversold technicals, low investor expectations, and other signals pointing to stabilisation.

“Investors will now view South African equities as a ‘show me’ story around economic reform implementation, given investors’ initial optimism and then disappointment on South Africa’s recovery last year and the slower-than-expected pace of reform implementation in Brazil more recently,” Morgan Stanley said in a note to clients on May 14.

Investors are awaiting news on the government’s new cabinet, a likely reduction in the number of ministries, the restructuring of Eskom and clarity around land reform. The market will also be eyeing efforts to reduce the country’s wage bill, which could see the departure of as many as 30 000 public servants, as well as plans to improve the cost and the ease of doing business.

“A lot has already been done to improve the regulatory and governance foundation, laying the groundwork for increased economic reform.”

It expects the election results to buoy SA’s macroeconomic and reform prospects. – Bloomberg