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If SABMiller delists…

Potential winners and losers.

JOHANNESBURG – The nature of rand hedge stocks on the JSE has changed quite substantially over the last decade and could change further if SABMiller was delisted following a takeover by Belgium beer giant Anheuser-Busch InBev (AB InBev).

Investment Solutions chief economist, Lesiba Mothata, says in 2003 Brian Kantor of Investec Securities identified four pure rand hedge stocks, but the composition of this group of securities has expanded quite significantly (as shown below).

Screen Shot 2015-10-22 at 4.47.39 PM

Source: Kantor et all 2003; JP Morgan; MER; Investment Solutions

Mothata said today even certain property shares like Intu are considered rand hedge stocks.

“The quality, the texture of rand hedges on the JSE has changed.”

But the economic environment is also very different. 

In 2003 the economic dialogue was dominated by the commodity super-cycle, the Chinese economy was growing at more than 9% per annum and foreign ownership on the JSE was fairly insignificant and concentrated largely in resource stocks.

Mothata said today counters like Naspers and British American Tobacco are all rand hedges, the Chinese economy is slowing and if investors want to protect their portfolios against currency depreciation, they can even consider industrial stocks.

One of these stocks is SABMiller, whose share price rose almost 30% in September amid speculation around the AB InBev deal.

If AB InBev’s proposed $106 billion takeover bid comes to fruition (there are still several regulatory hurdles it has to overcome before the transaction can be finalised), it would be one of the biggest local deals since 1994. It dwarfs the 2005 Absa/Barclays transaction, which was worth roughly R18.3 billion ($2.9 billion).

Should the deal transpire, consensus views from four brokers suggest that SABMiller would be delisted from the JSE and the London Stock Exchange (LSE). While the new entity will likely be relisted on the JSE, it will probably be subjected to rules that the total holding of domestic shareholders should be more than 5%, and it is not apparent that this would be achieved immediately. As a result, it may not regain its position in the Shareholder Weighted (SWIX) Index, Mothata said.

Many fund managers regard Naspers’s considerable weighting in the SWIX as a significant challenge at the moment and if SABMiller was delisted, this would likely be exacerbated.

The table below shows what a potential reweighting of the SWIX could look like if SABMiller was delisted.

Screen Shot 2015-10-22 at 4.48.14 PM

Source: Investment Solutions

However, given the likelihood that the rand would depreciate over time and the need for investors to have rand hedge stocks in their portfolio, the expectation is that other rand hedge stocks like Steinhoff and Old Mutual could benefit, Mothata said.

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