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With the outcome of December\u2019s 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 look beyond it.<\/p>\n
Instead of assuming the worst and piling into stocks that fare well when South Africa\u2019s rand weakens, or adding holdings in banks in the conviction a market-friendly candidate will win the African National Congress\u2019s top job, PSG Asset Management says those running its funds are positioning to ride out the storm.<\/p>\n
\u201cWhat 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,\u201d said Shaun le Roux, who helps oversee R33 billion ($2.5 billion) at Cape Town-based PSG.<\/p>\n
The contest to succeed Jacob Zuma has divided the ruling party, with factions forming around two front runners: Nkosazana Dlamini-Zuma, a former wife of the current leader, and Cyril Ramaphosa, regarded as the most favorable to investors. PSG sees the best approach to navigate the potential turmoil as using \u201cbottom up\u201d selections of individual stocks, while staying liquid enough to take opportunities when the market misprices shares, Le Roux said.<\/p>\n
\u201cWe sit with a lot of cash in the funds that allow for that and we\u2019ll grab opportunities if there is volatility in a sell-off,\u201d Le Roux said in an interview in Johannesburg.<\/p>\n
\u201cBut there\u2019s an overlaying price discipline that says we\u2019re not going to overpay – we\u2019re not going to pile into rand-hedges just because we\u2019re worried about what might happen.\u201d<\/p>\n
South African shares have lagged their developing country peers, 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%.<\/p>\n
Rand-hedge stocks that gain when the currency weakens have become expensive, Le Roux said. \u201cWe\u2019re 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.\u201d<\/p>\n
Discovery, the country\u2019s largest health-insurance administrator, is among Le Roux\u2019s preferred South African stocks. Local investors don\u2019t fully understand the company\u2019s competitive advantage in life and healthcare insurance and how it uses technology and data to gain market share and increase its earnings, he said.<\/p>\n