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UBS picks Ramaphoria 2.0 stocks portfolio for SA bet

Banks, retailers, industrial companies may gain after election.

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 e-mailed 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:

Among banks: Absa Group, Capitec, FirstRand, Standard Bank 

“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.”

Insurers: Discovery, Old Mutual and Sanlam

To benefit from the “lower-yield environment, improved consumer sentiment and strong market performance”.

Industrials and telcos:

Bidvest Group

Should benefit from a resumption of government contracts, with improved growth outlook supporting logistics business.

MultiChoice

Seen benefiting from improved domestic consumer sentiment and growth outlook

Vodacom 

Most exposed to the South African consumer, with attractive valuations.

Retail sector: Pick n Pay, Shoprite, Truworths, Mr Price, Clicks and The Foschini Group

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, AVI; 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 and GrowthPoint Properties

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.

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You could be forgiven for thinking that Ace Magashule and Mabuza are part of a different party to that of Ramaphosa.

This sounds a lot like the Twenty Ten fund which was marketed prior to world cup (think it was managed by David Shapiro). Granted the World Cup was only a month long, but pretty sure most of those construction companies don’t even exist anymore.

The only S.A. stocks I would be buying would be small caps like Long for Life (Joffe) and Lamberti’s taxi recapitilisation company (not long term either).
I don’t see the point of large investments in S.A. equities with all the negative noise and news, burning trucks and unionism on a rampant violence and intimidation spree.

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