COMPANY COMMENT: Banks bear the brunt of SA’s downgrades
At these levels, bank shares are undoubtedly cheap. It remains to be seen whether there is a good reason for this
Stock market darlings of 2016, South African banking shares are now looking considerably unloved. The JSE banks index — which comprises Barclays Africa, Capitec, FirstRand, Nedbank, Standard Bank and Rand Merchant Bank Holdings — is down 4.3% in 2017 after climbing nearly 27% in 2016. Tellingly, the index is off 6.39% since former finance minister Pravin Gordhan was recalled from an international investor roadshow in March, which culminated in his removal later that week and downgrades to junk of the country’s foreign currency credit rating by S&P Global Ratings and Fitch. Investors are clearly worried about banks’ significant exposure to SA Inc, with downgrades and talk of recession weighing on share prices. Still, some banks’ dividend yields are nearing record highs, while the banks index is trading at about half the price:earnings ratio of the JSE’s all share index, which is up about 4.5% since the recall of Gordhan. Incidentally, the only banking stock bucking the downward trend...
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