JPMorgan forecasts further gains for SA stocks after bumper first half

SA stocks have just closed out their strongest first half in 14 years, and JPMorgan Chase is among those forecasting further gains for 2021.

The benchmark FTSE/JSE Africa all share index climbed 12% in the first six months of the year, the best performance since 2007. That outpaced developing country peers, with MSCI’s gauge of emerging markets up less than 7%. Johannesburg stocks continue to trade at a discount to the MSCI gauge.

JPMorgan is overweight on SA domestic stocks, including banks and general industrial companies, which stand to benefit in a recovery from the pandemic, adding to the tailwinds provided by rallying commodities prices that have boosted stock prices and the local currency.

“The outperformance for SA relative to emerging-market focused stocks is not over yet,” John Storey, the US bank’s head of SA equity research, said in an e-mailed response to questions. “The investment sentiment and mood in SA is improving, underpinned by a stronger rand, committed foreign direct investment, strategic inbound M&A and an overall improvement in consumer and business confidence.”

Domestic SA stocks have been boosted by a rebound in economic activity as well as the quickening pace of reforms in the country, said Peter Brooke, a portfolio manager at Old Mutual Investment Group, which oversees more than $45bn.

“A lot of this recovery has been driven by earnings, so the market has not been getting much more expensive and generally the companies have delivered what we see as good results,” Brooke said. “There has been quite good cost control and good cash control, and now you have companies that are exiting in good financial shape and actually, we don’t think they have gotten expensive yet.”

The optimism is felt more widely: Bank of America’s June survey of SA fund managers showed they see returns rising by 17% over the next 12 months.

JPMorgan lists five SA companies among its top 10 picks in the Central and Eastern Europe, Middle East and Africa region: Sibanye-Stillwater, MTN, Capitec, Absa and Bidvest.

Bloomberg News. More stories like this are available on bloomberg.com