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Why Goldman is bullish on the rand, SA banks

Is this the reason investors are piling into bank stocks?
Image: Brian Killigrew, Bloomberg

The news last Monday that BioNTech and Pfizer’s Covid-19 vaccine was 90% effective in clinical trials sent shares rocketing. The news was unexpected, and global markets rallied. JSE-listed banks had their best day in years, with some shares up over 10% on the day.

The trade was logical. An imminent vaccine would mean a return to ‘normal’ and the risk of crippling lockdowns would recede. The theory is that the worst would be behind us and all the bad news is already priced into (particularly bank) shares.

There was a separate boost from news that Joe Biden had won the US presidential election, which would likely see a de-escalation in the trade war with China. Fears that Biden’s election would mean higher taxes and a weaker dollar over time seem to be misplaced as the Democrats will likely struggle to push through any tax increases in the next two years, given that, for now, Republicans control the Senate. The January run-offs in Georgia are critical to any aspirations the Democrats have of controlling both houses.

Seven-day move Year-to-date move
Investec plc 26.42% -34.32%
Nedbank Group 24.93% -38.89%
FirstRand 17.62% -25.58%
Standard Bank Group 12.35% -25.19%
Capitec Bank 10.87% -3.34%
Absa Group 9.13% -32.05%

Source: Profile Data

Coupled with this was a further theory that investors had started rotating from growth stocks (chiefly tech), trading at stretched valuations, to shares that offered value. This is one of the reasons the JSE has performed so poorly in the last five years. Money was favouring growth (in developed markets) at almost any price. As an emerging market, most stocks on the JSE (Naspers/Prosus excluded) were simply unattractive. Now with the trend seemingly reversing, these companies – many of whom are trading at historically-low multiples – are a lot more appealing. The bull case going forward is that this rotation plays out and that so-called ‘SA Inc’ shares are beneficiaries of the switch.

Goldman bullish on three counts

A recently published note by Goldman Sachs suggests investors should be “long emerging market banks versus consumer staples”. It says “banks emerged as one of the worst-performing sectors in Q1 and so far have only recovered a quarter of the value lost”.

It adds: “The underperformance has been driven by multiple factors, including rising non-performing loans and, in some cases, asset purchase programmes and deep rate-cutting cycle, flattening curves and eroding net interest margins.

“We push back against the view that these headwinds will be sustained,” it says.

“The NPL [non performing loan] cycle already appears to be significantly priced in across EM [emerging markets], with current valuations already accounting for a rise in bankruptcies.

“We have found that the earnings cycle of banks in high-yielding countries … are inversely correlated with the level of interest rates and are less impacted by the slope of the yield curve.

“Central banks across EM have cut rates sharply since the start of the coronavirus crisis, and we would expect a credit growth rebound as activity recovers, with the potential for a vaccine to unlock the current value in bank sectors. Our preferred countries for a positive banks expression are Brazil, Russia, India, Mexico and South Africa, where earnings appear more tied to credit growth than net interest margins, and where a significant round of NPLs already appears to be factored into bank valuations.”

Goldman Sachs says that “structurally”, it favours growth sectors like technology, hence why it has constructed this trade relative to emerging market consumer-staples companies.

An additional fillip is provided by another relevant trade for our market: “long a roughly volume-weighted basket of MXN [Mexican peso], ZAR [South African rand] and INR [Indian rupee] versus USD [US dollar]”.

The bank says it first initiated this latter trade on October 9, because “emerging market high-yielding foreign exchange is one part of the emerging market asset complex where deep value still resides, suggesting more room to run from here”.

It says the peso and rand “each offer an attractive combination of high carry, undervaluation and high exposure to a cyclical upturn”.

Finally, a third boost comes from the investment bank’s call to be long SA government bonds (SAGBs).

It favoured the 10-year bond earlier this year but switched its preference to the six-year bond (R186) just before midyear “to maximise carry relative to duration and issuance risk”.

It says “while the country’s fiscal picture remains a source of concern for longer-term local asset returns, we would argue that yields on offer are still sufficient to compensate for the underlying risks”.

“The SAGB rally has of course compressed these risk premia, but on a relative basis, in a world that remains more starved of yield going into 2021 than initially anticipated, we still think that SAGBs is an attractive trade.

“We open the recommendation [with a yield target of 6% and a stop of 7.75%] in USD-hedged terms, but given the rising [foreign exchange] FX-hedging costs and our constructive view on the rand, we also see upside potential in FX-unhedged longs.”

Earnings view remains subdued

At the UBS SA Financial Services conference held about a month ago, Nedbank shared its “current thinking” with the warning that “in the current environment it is extremely difficult to provide accurate guidance”. It is important to note that these are not formal forecasts (these will likely be shared at the group’s full-year results early next year).

It shared combined broker forecasts for the country’s five main retail banks from Iress as at October 8. Based on this, says Nedbank, and assuming current GDP recovery forecasts as well as banks’ credit loss ratios getting back into through-the-cycle ranges, “headline earnings could get to 2019 levels around 2023”.

Nedbank says its cost-of-equity is forecast at approximately 15% from 2020 to 2023, driven by higher long-bond yields and risk premiums. Its “thinking” is that the bank’s return-on-equity will only return to a higher level than the cost-of-equity a year later than the earnings recovery (i.e. 2024).

Dividends could resume from the first-half of next year, provided the Reserve Bank withdraws guidance note number 4, and conditions do not worsen from this point.

Source: Nedbank Group presentation at UBS 23rd Annual SA Financial Services Conference 2020


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In March 1994 the usd ro zar was 3.

South Africa has done well in dealing with covid-19.

Very big new gas resources found of Mossel Bay. Probably as significant as when Sasol was started.

Corruption is for the first time being addressed.

South Africa has come along way and cheaper to live in than most countries in the world.

The economy can improve.

But then again you live in AFRICA, and if I may say so sir, Africa will never change.

I like your positive Attitude. Imagine if the country was ruled by the right leaders, imagine how well off we would have been then.

All that SA needs to improve, is the political mindsets of our leaders. I’d start with education comes as first priority.

A forlorn hope.
The stench you smell is the corruption of a dying country.

or maybe they want to dump at slightly higher prices


Whilst everyone appreciates your point, its not easy on the eyes with all the capital letters. Clearly you have a passion, now help us all read it 😛

Thank you for addressing this. I can’t but always read ALL CAPS as if someone is screaming. Really makes for unpleasant reading experience and @Veritas56 makes valid points.

Maybe his CAPS LOCK is broken. I can just hope it gets fixed soon, for the sake of his argument as most people don’t take to kindly to someone shouting to them.

…Veritas56’s keyboard must be STUCK on Caps Lock 😉

Why are you shouting, we’re not deaf? Biden did win, you might as well accept it and move on.

My popcorn is ready. Let’s see how this ages…

@Dr Gonzo if I may make a suggestion. Ask more questions from the very concentrated media and analyse the narrative (and language) that is used because more often than not it is very well constructed to hide the truth under the layers so they cannot be sued, but the narrative and facts paint different pictures.

Have you asked yourself why everyone in the media hated on Trump before he even won the election back in 2016? Are these claims based on factually correct and substantiated information or just narratives that ignore the truth?

Dr Gonzo, Trump won 71 million votes, 26% of the minority vote

20% of Muslims voted for Trump and 2/3 of Muslims supported him
Biden did not win. Big tech and MsM waged constant vitriol against Trump

The alarming fact is Trump has been cancelled, censored by an apparatus that consisted of big tech companies, MsM and progressive groups and a voter system Dominion that was called out as having a backdoor switch

If Trump loss impresses you, then “banality” is a symptom you are part of
A democracy was exchanged for a coup

Biden won by far. Make peace with it.
I don’t really care who won, as long as it was not Mr. Trump again, as he did nothing for us or Africa.

Good ridens, Mr. Trump can play more golf now while the rest of the world can live in peace again.

We can all breathe again, he was killing our economies.


Interesting to see you claim to not care who won but in the same sentence as long as it is not Trump.

You make claims of him killing our economies. Care to provide evidence for that statement because I clearly must be living in another universe where the facts outweigh the narrative.

Orange man bad? Am I right?

I wonder what your opinion would be when it comes to local politics.
Would you also like to attack someone like John Steenhuisen with ad hominems and references to his skin pigmentation and argue that the ANC or EFF are better options than the DA?
Would be great to see how you would react after a 4 year presidency of John.

My popcorn is waiting…

You sound like a barfly, repeating inconsequences to anyone who feels sorry for

@Leah Buchanan

Wow, you called me a barfly. Ouch! My feelings are hurt while I enjoy my popcorn.

I posted this comment on May 16, 2020 – in reply to a Moneyweb Article titled – “What could the rest of 2020 hold for the rand”

”There are only two people in the world that know where the Rand is heading – the only problem is they don’t agree”

I was an FX Dealing – Corporate specialist for more than 45 years and now retired.
I am in daily contact with 12 old ex-colleagues, all over the world. I recently asked all my FX mates to give me a Dollar/ Rand forecast – where they saw it trading at certain dates: The mix was 75 % who are still resident in SA and the rest all over the world:

These are the average rates forecasted when the ZAR was trading at its weakest level this year.
EX-dealers now living Offshore:
December 31, 2020 USD/ZAR 20.2000
June 31, 2021 USD/ZAR 20.7000
December 31, 2021 USD/ZAR 23.000
EX-dealers now living in South Africa
December 31, 2020 USD/ZAR 15.9000
June 31, 2021 USD/ZAR 14.8000
December 31. 2021 USD/ZAR 14.5000
It was evident that the dealers that are far away from the market are much more bearish on the ZAR – may be due to the negative news etc. that are covered offshore.

So far so good!

You will see real currency war when Bretton Woods 2.0 comes into place.
I am of the view: spread it like they do on a roulette table and start the wheel.

Just like Covid had no victim preference, the same will be leading up to the Moment Bretton Woods 2.0 is discussed and the implications there of.

The million dollar question will not be how to create value but rather how to sustain your current value.

I am a ”Euro- skeptic” – and will allways be. The DEM and FFR exchange rates was ”articifially” undervalued when the EUR were set.

I am a Bretton Woods fan and I am well aware that the the Bretton Woods system gave the US currency – which was linked to gold – the dominant position in the world economy and allowed the US to run a trade deficit without having to devalue.

Times have changed nowand the US will have to counter other big trading regimes like China, Korea and India, as they haven’t got a dominant position anymore.

@comme ci comme ca,
I am of the view the policy around BW2.0 will be to address the $30Tril world debt by way of Debt Forgiveness and repurchase this with a global cryto currency issued directly from the IMF.

Afterall you cannot have negative Bitcoin, alas this new money will hopefully create a middle class society by lifting the floor of the poorest to an Entry Level Class across the world.

At the moment people can only speculate who and what will be involved in this process, I Fully agree with you the US has lost a lot of power and needs to Push ahead quickly with BW2.0 or fear losing even more power.

Earlier this year a Standard Bank team doing a webinar on metals projected their figures based on R15/$ or thereabouts if I remember correctly. I was surprised but they seemed quite confident.

Most FX dealers at big Banks will make the same calls…

Just have a look at the monthly trade numbers, so far this year…big import items like ”capital expenditure”, became non-existant..The big capital outflows pre-junk status left, but the Rand strenghtened thereafter – you buy the rumour and sell the fact – the rand is an order market and all the big bad flows went through…I expect the rand to be much stronger next year…

I always enjoy people’s future predictions when it comes to currencies and shares and I often get the feeling people choose to ignore history.

Pick whatever timeline you wish, whether it’s 10 years or longer, the South African Rand and its economy has been losing all the way against the big ones and even against our smaller other African neighbours including Botswana and Mauritius.

I have found it’s more useful watching people than it is listening to them.
People tend say one thing and do another. It’s easier to tell people something and to watch them do it while you do something else.
Observation is more powerful that what people give it credit. Hence why so few people learn from history and why so many repeat it while the few benefit because they chose to rather observe than listen.

I am in your camp. I really hope the ZAR strengthens because then I can buy USD or EUR or invest overseas at better rates.30% unemployment, rampant BEE / AA, defunct licencing, postal service etc, no overseas tourists, massive grant payouts, Eskom, SAA, Land Bank etc debt, NHI and EWC looming and you think the ZAR will continue to strengthen? Hmmmm, just maybe not.

Do not take any action on the basis of this article. Goldman Sachs comprise a number of clever people. That said,no-one can discern the future.

These thoughts are informed thoughts, but represent nothing other than speculation.

Speculation and noise create demand for content, which in turn creates space for advertising.

This article may comprise viewed that may or may not be suitable to you and your objectives.

Spot on! It’s like watching sport where the whole expert panel says Team A is going to easily beat Team B. But do they the experts bet on the match? No. They just get paid to share their opinion / foresight / predictions while having no exposure to their own predictions.

Watch who has skin in the game and who doesn’t. Almost all the people being paid to report on the economy have no direct exposure to what they right because how they choose to invest is a secret (and that is their right), but the same way the big banks and the people heading the IMF etc. they all get their salaries at the end of the day no matter what happens with the USD etc. just the same as the sports pundit.

A friend of mine in Austria and I were just discussing the other day how much disposable income we used to have a few years back. We both have an appreciation for quality tools and certain custom-made collector’s items, most of which were made overseas.

Ten years ago, I would buy and sell items like crazy, shipping stuff back and forth, mostly to and from the USA. Two things made this possible. One was a postal system that actually worked. Second was an exchange rate that sat around R10 to the greenback which made these items affordable.

When our currency crashed thanks to Zuma et al, it changed things completely. I wonder how many people fully appreciate what a difference it makes to have a stronger currency. I sincerely hope these experts are right because if we can keep heading towards R10 to the dollar, it will change things fundamentally in this country.

I personally have my doubts, but one can hope! Now all we have to do is fix the post office.

Many decades ago I made enough money in the gold boom to spend almost a year traveling around Europe. I offered a 100 Swiss Francs note at a restaurant to pay the bill and the waiter had to go to another business to get enough cash for the change. The Rand was 1/$ and 2/Pound.

@Dr Gonzo

With the ANC in charge and possibilities of coalition with the EFF while both push for things such as EWC, changing the voting system, nationalising the SARB all while SOE’s keep getting funded the economy will keep trending downwards over the long run.

It’s fine to have hope, but banking on hope would be a mistake.

There is probably more chance of a snowstorm in the Kalahari than the Rand getting back to R10 to the dollar. Goldman Sachs are delusional and don’t live in the reality that is South Africa. This country is stuffed and the only reason more people have not left is because the exchange rate has effectively trapped a lot of people. Most people can’t afford to buy a house in the UK or Australia without winning the LOTTO. The long term picture for the Rand does not look. Sometimes the best predictor of future behavior (of the Rand) is the past performance. Which is really really S#1T

I wonder if Goldman’s have changed their minds about investing in SAR since Judy Sheltons nomination to the Fed Board has been stopped much to the consternation of Trump and the Republicans. She was keen to push for the re introduction of the dollar based Gold Standard – somehow this action is linked to Goldman’s stance on Gold, the Dollar value and the Rand! Going to be interesting to see how this plays out.

End of comments.





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