Discounts outweigh junk status as investors buy South African banking stocks
Foreign investors have been snapping up South African banking stocks, enticed by the cheapest valuations relative to emerging-market peers since 2011, even as the country’s downgrade to junk deepened a broad equity sell-off. Offshore investors bought a net R1.5bn of bank shares, including those of FirstRand and Barclays Africa Group, in the six days after S&P Global Ratings downgraded the SA’s foreign currency debt on April 3. Fitch Ratings followed with a similar cut on April 7, described by a banking industry body as "devastating" for lenders. Excluding bank shares, foreigners sold a net R2bn of other stocks in the same period, bringing equity outflows this year to R43.8bn, according to JSE data. Valuations of the country’s banks have plunged to 10 times historical earnings, compared with 19 for the benchmark FTSE/JSE all share index. While facing higher costs of capital, rising bad debts and a slowdown in lending, banks were well capitalised to withstand the storm and cheap enoug...
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