NinetyOne remains constructive on banks and insurers as well as miners. It is cautious on consumer-facing stocks, especially discretionary retailers.
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Ninety One is taking a constructive stance on South African equities, saying the war in Iran has created opportunities to buy stocks at prices that are not justified from their earnings perspective.
The Middle East conflict is weighing on the economic growth and inflation outlook, and mining stocks are being hit after precious metals prices fell. But earnings expectations for the South African market remain largely unchanged, said Hannes van den Berg, portfolio manager of the $232 billion asset manager based in Cape Town.
Estimated 12-month earnings per share for the FTSE JSE All Share Index have fallen by just 4% since the start of the war, according to data compiled by Bloomberg. Several long-term investment themes still support the country's equities, he said, including critical minerals demand, supply constraints in commodities and continued investment tied to artificial intelligence infrastructure.
“There are still strong opportunities in the resources, financials and global growth themes,” Van den Bergh said. “Those drivers haven't fundamentally changed.”
Despite an improvement since mid-March, South Africa's benchmark index is still down more than 5% since the start of the war. It's a sharp turnaround after posting 12 consecutive monthly gains dating back to February, the longest such period on record.
The precious metals and mining sector, which accounts for a quarter of the index's weighting, has fallen 13% since the beginning of March, wiping out most of this year's gains as gold and platinum prices fell. It comes amid a widespread selloff of emerging market stocks as investors worry that rising oil prices will fuel inflation, forcing central banks to raise interest rates.
Nevertheless, Ninety One remains constructive on banks and insurers as well as miners. It is cautious on consumer-facing stocks, especially discretionary retailers.
Van den Bergh said geopolitical shocks often create pricing dislocations, a dynamic the firm has previously exploited during events such as pandemic-induced selloffs and earlier war-related instability. “These events are not enjoyable, but they create opportunities. Our job is to take advantage of mispricing within a disciplined framework.”
Ninety One is not alone in looking for those opportunities. A Bank of America Corp survey conducted between April 2 and 9 showed a net 81% of fund managers buying more than selling in South African stocks, up from 69% in the previous survey. The survey found that positioning is shifting away from being overweight cash and back into local equities, with half of respondents believing South African equities are undervalued.
“We remain firm on the fundamentals, and at this stage, there is not enough that would lead us to change our view on the fundamentals of the stocks in our portfolio,” van den Bergh said.