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Credit Suisse starts to see value in ‘South Africa Inc.’ stocks

Stocks have suffered enough, it says.

There are signs that the battered stocks of companies focused on the South African economy have suffered enough, said Credit Suisse.

Investors should start to accumulate these shares, funding this by booking profit on rand hedges that benefited from weakness in the currency, while keeping South Africa at benchmark levels in an emerging-market portfolio, London-based Alexander Redman and Arun Sai wrote in a note.

Read: Foreigners are dumping SA bonds as junk status looms

Negative sentiment has reduced domestic South African stocks to the cheapest compared with emerging-market peers in almost a decade on a price-to-future-earnings basis, the analysts said. They offer a dividend yield 56% higher than the emerging-market aggregate, while rand hedges yield less than half that of developing nation shares.

There are reasons to be more optimistic, the Credit Suisse analysts said. They expect some appreciation in the rand, while predictions about South African economic growth are overly pessimistic. Sturdier household finances suggest consumer spending may recover, while the earnings outlook for domestic companies is improving. Plus, there’s evidence that heavy foreign selling of South African assets may almost be done.

South African value stocks creating yield plays include First Rand, Standard Bank, Vodacom, Sanlam, Nedbank, RMB, Exxaro Resources and Mr Price, the analysts said.

“During our June/July investor roadshow we noted that the intensity of questions we fielded relating to domestic South Africa from emerging equity managers had discernibly increased relative to previous trips,” they wrote.

© 2019 Bloomberg L.P.

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This won’t end well.

Mining stocks have run their course, retail stocks getting battered in weak economy. Cheap does not equal value, but for some reason Credit Suisse analysts with a CFA should be believed.

I honestly think Walmart will dispose of Massmart soon. You can’t compete against Shoprite, which is looking cheaper by the day. Distribution centre issues and SAP onboarding was self-inflicted. Definitely one to add to long-term portfolio.

Richemont another quality company on JSE. Let’s just hope hong kon protests end soon, we know how much that region likes an expensive watch!

Cool, so drop the commodities and cash to gather 20% financials, 40 industrials and 40% retail.
Don’t listen to me, I know nothing.

I agree. Not a long term play, but these few equities can expect a bounce soon particularly due to oversold and high divi yield. That plus rand appreciation post the Argentinian explosion will see a quick 20% in September. IBIWISI. Caveat emptor.

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