South Africa
Apartheid, a system of legalised discrimination dating back to the 1950s, cast a shadow on South Africa in the eyes of the international community for many years. In addition to United Nations sanctions, the U.S. Congress passed the Comprehensive Anti-Apartheid Act in 1986, resulting in the withdrawal of many large multinational companies from South Africa. The end of apartheid in South Africa in 1994 opened the door again to wider investment in the country, but since then, its economy has been struggling to reach its full potential for a variety of reasons.
South African stocks have started 2015 on a solid note, aided by the recent drop in oil prices. In particular, retail businesses (particularly clothing and food) seem to be benefiting from the potential boost to domestic consumption from lower fuel prices. While South Africa has been struggling with an electricity crisis that could stunt GDP growth this year, we continue to believe that attractive long-term investment opportunities exist across a range of South African markets and sectors.
With the government’s focus on redistribution of wealth and extensive social grants, companies that provide goods and services to consumers at the low end of the income scale have benefited tremendously and, in our view, should continue to do so. Also, many South African-based companies that generate a substantial portion of their income from operations and investments in other markets have benefited from a weakening of the South African rand relative to the U.S. dollar and other major currencies. The real estate sector has been stable with price growth in recent years, fueled by demand that substantially outstrips supply, especially at the entry level. In this regard, the financial sector plays a key role, with banks taking a fairly conservative approach to both asset-backed and non-asset backed lending activities.
Moreover, a number of South African companies are investing on the rest of the African continent across a variety of industries, including infrastructure, retail, financial services and telecommunication.
