The world may still be teetering on the edge of a recession, but according to Richard Middleton, now is the time to buy into the South African domestic story. Middleton would know, too – he is Portfolio Manager and Head of Growth Investing at STANLIB, the US$45bn Johannesburg based asset management operation of the Standard Bank of South Africa.
Despite challenging market conditions on the back of rising inflation and interest rates, domestic South African Industrial companies, particularly within the infrastructure sectors, are very attractively valued and have good growth prospects.
The strongest growth has been in domestic resources stocks. This has been fuelled by developing country spend from China and India, which in turn has driven a dramatic pick-up in commodity prices.
Middleton says: “We believe the South African government's planned infrastructure spending is going to continue until 2015/ 2020, well after the build up to the World Cup in 2010 has taken place. This will provide important momentum to the economy which is in a better condition than ongoing speculation. The domestic economy is actually the best it's been for 10 years.”
South Africa has resembled a tale of two cities over recent months. On the one hand, the last five years has seen the economy being driven by consumer spending, as a result of lower interest rates, and increased employment in the middle class segment of the economy – on the other, in the past 18 months, consumer spending has slowed down as interest rates have increased on the back of rising inflation, but government financed infrastructure spend has increased significantly.
Short term performance will be volatile, particularly in the resources sector, but Stanlib's growth team sees the current market turmoil as an excellent buying opportunity. Long-term positioning is key.
The expansion of South African companies into Africa represents an excellent springboard as these companies know how to do business in Africa and are well positioned to take advantage of the African story. The tourism market should also pick up on the back of the World Cup in 2010.
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