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Is South Africa going to pull itself together?

Coronation’s Karl Leinberger talks candidly about risk.

Over the last few months, there has been significant debate around how cheap South African stocks are.

“In my opinion, you can fill a room with the smartest people you can find. You can give them six months to go out there and go and kick the tyres and see every management team and visit every business in South Africa, you’d never get away from the million-dollar question which is: is South Africa going to pull itself right?” Karl Leinberger, chief investment officer at Coronation Fund Managers, told advisors at the Investment Forum 2019.

No amount of work will provide this answer, he said.

During a presentation on the trade-offs between risk and return, Leinberger said Coronation’s investment team agonised over this, because if South Africa can pull itself back from the abyss in a meaningful way, there are incredibly cheap domestic stocks available.

Challenges may outweigh the case for recovery

Due to the risk that structural challenges may outweigh the case for cyclical recovery, it currently has very low exposure to domestic, economically sensitive assets.

Speaking more broadly, Leinberger said there is a massive emphasis on short-term performance in the industry, but very little focus on the risk taken to deliver those returns.  

While textbooks often define risk as volatility, Coronation regards it as the probability of a permanent loss of capital.

“I firmly believe, after 20 years in the industry, that a manager reaching for return at the expense of risk could get away with it for much longer than any of us realise.”

But ultimately, they will be exposed, he said.

No one knows what the future holds

Managing retirement money is not a game. The first rule of investments is never to lose money. The second is that in an industry full of smart people with intimidating IQs and enormous confidence in the future, you shouldn’t forget that no one knows what the future will hold.

“We all need to fight hubris on a daily basis. The world is extraordinarily complex and uncertain.”

Coronation believes that risk matters more than return, he said.

“I cannot tell you how many shares on the JSE that we look at today [and] that we think are extremely cheap that we do not own in your portfolios. There are many stocks out there that we think could go up three, four, five times in the next five to 10 years and yet we don’t own them.”

One example is construction shares. Leinberger says Coronation doesn’t own construction shares even though one or two companies could deliver fantastic returns – the risks are just too high.

The same goes for gold shares.

“The world doesn’t need South Africa’s gold. We have marginal businesses with low quality reserves, high cost bases, unstable labour forces. We fundamentally think – although we could build a case around those shares doubling – we think they could just as easily halve and for that reason, we aren’t going to go there.”


While South Africa has a long list of worries, with load shedding currently top of mind, Leinberger also cited rising social tension and economic populism as a real concern.

“Almost every business we speak to is shrinking the number of people they employ. Large numbers of South Africans are being left without work, left behind by the economic system. We are seeing rising levels of frustration – far too many people in South Africa have nothing to lose.”

Leinberger said his biggest long-term concern is education.

Only 37% of people in South Africa who start school get a matric, while only a quarter of grade four students grasp what they are reading.

But even though risk abounds in South Africa as well as internationally, there is opportunity.

“Certainly in the domestic market valuations are much more attractive than they were five years ago, where generally markets were bullish about domestic assets – and we are finding opportunities as much in the equity market as the property market as the bond market.”

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How well Coronation has down under Karl & Anton!!! LOL!! African Bank et al!!!

and ten plus billion in steinhoff

He also does not say how much they had in construction companies and say Aspen before they plunged. The construction companies have collapsed for slightly differing reasons but all essentially around the drying up and subverting to Gupta types of government infrastructure spend (IMHO of course). Looking at this a little wider I believe it points to any investment in SA being very risky; the incompetence and stealing from the ANC has finally caught up.

All of this from Karl Leinberger is just polite “business-speak” for “We’re screwed ”
And I am afraid to say that he is right.

Notice on his pic his smile does not quite reach the stressed out eyes.

“…an industry full of smart people with intimidating IQs…”

You’ve got to be joking!

He tried to temper it just after, “We all need to fight hubris on a daily basis.”

Seems some need to fight a bit harder with their hubris…

Here’s a challenge for you: Name one portfolio manager that isn’t smart? Just one.


But I don’t want to be a portfolio manager.

Should Coronation not pull itself together first?

However, with a good election in a few days, CR starting to fire the bad guys and starts governing, then the economy might start to pick up.

Agreed that Coro needs to pull its together and in need of a serious overall.A recent roadshow lacked any enthusiasm by three of its leading people,and we all know Anton fails to inspire .Therefore not the right people to be asking these important questions.Fund performance,poor investment decisions,serious capital outflows,a clear lack of leadership,remuneration issues are some of the aspects dogging this business

Here’s how I see it. Coronation is a wonderful, high quality company but they will experience difficult times like every business and bouts of underperformance just like every other fund manager. No surprises here. If you don’t it then you are free to find another fund manager i.e. what’s the problem. If we had more companies like Coronation this country and economy would not be in the precarious position it is. Look at our horrendous political leaders and destructive economic policies if you want to know what is holding the country back. No qualifications, corrupt to the core, no standards, filled with racism and hatred yet make the key decisions impacting all of us. Coronation and the rest of the fund management industry can only work as best they can in the shocking investment environment our useless political leaders have created.

Coronation is no longer the dynamite company it once was. There has been a very clear cultural shift in the way they do and think about business.

The ABIL, Steinhoff and New Look bond fiascos speak clearly to the lack of ability in their team’s stock picking. I hear also that all analysts are now permitted to fly business class instead of economy class (a recent change in the last year or so). At shareholders expense of course.

Not to mention the gross overpayment of mediocre at best fund managers and analysts. Just look at their global funds’ performance. Haven’t outperformed the index over any measurement period.

The shift to passive investment globally is only going to accelerate in SA. Long gone are the days of enourmous fees. Look at the average fees for active managers offshore. The world is mean reverting. There is no way Coro will continue to maintain fee levels in years to come. The listing serves no purpose other than to reward employees with stock. Why should it be listed? It has no need for capital.

Stock to fall much further over the coming years as fees compress and passive overtakes active management.

I wonder if we should not rephrase the question to: Can South Africa pull itself together? I think not! We are out of money! The last few investors that were in SA are now living in Mauritius, and as we all know you can not create jobs without investment. When Trump came into power the the first thing he did was to change regulation to make it easier to do business in the USA and he cut taxes, result: full employment in the US! What do we do? More regulation and more taxes and the end result: no jobs! I have not heard one political party suggesting we should cut taxes to save the economy!! Cut taxes, invite local and foreign investors back, introduce a one child policy and stop paying people not to work! Bring back law and order, cause there is none! I am afraid I don’t think this will happen hence SA cannot turn itself around!

Agree 100% what needs to be done to get SA back on track economically.

While driving, I caught a radio-advertorial from Dr Pieter Groenewald (FF+) stating exactly that….that their manifesto would be to lower SA tax across the board, and ease the burden to do business in order to be investment friendly. No populist rhetoric. Just talked complete sense….pity they’re 1% of national vote.

“Is South Africa going to pull itself right?” – pull itself right from what?
We have a democratic ANC led government, just as the world wanted, so what seems to be the problem?

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