Investors blinkered by bad news from South Africa risk losing out on a stock rally, according to Standard Bank Group.<\/p>\n
The country\u2019s benchmark stock index slumped 11% last year amid stagnant economic growth, a deteriorating fiscal environment and political upheaval, while the Federal Reserve\u2019s policy-tightening and concerns over the US-China trade dispute also weighed on emerging-market stocks.<\/p>\n
But equities are set for a recovery in 2019 as the economy gathers momentum, Standard Bank analysts including chief economist Elna Moolman said in their quarterly review of African markets, published on Friday.<\/p>\n
Even after a 7.2% rally since mid-December, the FTSE JSE Africa All Share Index is still near its cheapest relative to emerging-market peers in almost seven years, according to data compiled by Bloomberg.<\/p>\n
That\u2019s too pessimistic, given a recovery in consumer spending, healthier household balance sheets and improving consumer confidence, the analysts said.<\/p>\n
“A worst-case growth scenario is being priced into South African equities, and we believe this is overdone,” the analysts said.<\/p>\n
“We remain constructive on the South African equity market outlook and believe that 2019 will usher in a higher growth path for South Africa.”<\/p>\n
Not everyone agrees. Foreign investors sold a net R53 billion ($3.9 billion) of South African equities last year and have dumped another R12.1 billion in January.<\/p>\n
The economy is forecast to grow just 1.5% in 2019 following last year\u2019s estimated 0.7% expansion. Investors are also concerned about President Cyril Ramaphosa\u2019s ability to implement much-needed reforms as an election looms in May.<\/p>\n
“Growth-skeptical investors appear to be waiting for a real growth recovery,” the Standard Bank analysts said.<\/p>\n
“Even factoring in investors\u2019 more pessimistic growth outlook, we believe the market is overly discounting bad news, having de-rated more in 2018 than during previous risk-off phases barring the global financial crisis and the 1998 Asian crisis.”<\/p>\n