Picture: DAILY DISPATCH
Picture: DAILY DISPATCH

With the outcome of December’s ruling-party leadership contest impossible to forecast, a South African money manager says the best strategy is not to position for the event, but rather to look beyond it.

Instead of assuming the worst and piling into stocks that fare well when the rand weakens, or adding holdings in banks in the conviction a market-friendly candidate will win the ANC’s top job, PSG Asset Management says those running its funds are positioning to ride out the storm.

"What we want to do is own stocks that are going to do fine for our clients on a long-term view, regardless of what happens," said Shaun le Roux, who helps oversee R33bn with PSG.

The contest to succeed President Jacob Zuma has divided the ruling party, with factions forming around two front runners: Nkosazana Dlamini-Zuma, Zuma’s former wife ; and Cyril Ramaphosa, regarded as the most favourable to investors. PSG sees the best approach to navigate the potential turmoil as using "bottom-up" selections of individual stocks, while staying liquid enough to take opportunities when the market mis-prices shares, Le Roux said.

"We sit with a lot of cash in the funds that allow for that and we’ll grab opportunities if there is volatility in a sell-off," Le Roux said. "But there’s an overlaying price discipline that says we’re not going to over-pay — we’re not going to pile into rand-hedges just because we’re worried about what might happen."

South African shares have lagged their developing-country counterparts, with the benchmark index gaining 9% this year, compared with a 25% advance for the MSCI Emerging Market Index. The rand has strengthened 1.4%.

Rand-hedge stocks that gain when the currency weakens have become expensive, Le Roux said. "We’re not avoiding anything, but we do flag that some of the traditional hedge stocks that are big in our index look very pricey to us and we think there are much better opportunities for our clients."

Discovery is among Le Roux’s preferred stocks, noting that local investors don’t fully understand the company’s competitive advantage in life and healthcare insurance and how it uses technology and data to gain market share and increase its earnings, he said.

Bloomberg

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