Ninety One sees South Africa opportunities in war volatility

Ninety One Plc remains constructive on South African equities, saying the war in Iran has created opportunities to buy stocks at prices that are lower than justified by their earnings outlook.

The Middle East conflict is weighing on the outlook for economic growth and inflation, and mining stocks are being hammered after precious-metals prices plunged. But earnings expectations across South Africa’s market have remained largely unchanged, said Hannes van den Berg, a Cape Town-based portfolio manager at the $232 billion asset manager.

The estimated 12-month forward earnings-per-share for the the FTSE JSE All Share Index has edged just 4% lower since the start of the war, according to data compiled by Bloomberg. Several longer-term investment themes still support the country’s equities, including demand for critical minerals, supply constraints in commodities, and continued investment linked to artificial intelligence infrastructure, he said.

“There are still strong opportunities in resources, financials, and global growth themes,” Van den Berg said. “Those drivers haven’t fundamentally changed.”

Despite a rebound since mid-March, South Africa’s benchmark index is still down more than 5% since the start of the war. That’s a sharp turnaround after the gauge logged 12 straight monthly gains through February, the longest streak on record.

The precious metals and mining sector, which accounts for a quarter of the index’s weighting, has tumbled 13% since the beginning of March, wiping out most of this year’s gains as gold and platinum prices slumped. That came amid a broad selloff of emerging-market stocks as investors fret that the spike in oil prices will fuel inflation, forcing central banks to raise interest rates.

Still, Ninety One remains constructive on miners, along with banks and insurers. It is cautious on consumer-facing stocks, particularly discretionary retailers.

Geopolitical shocks often create pricing dislocations, a dynamic the firm has previously exploited during events such as pandemic-driven selloffs and earlier war-related volatility, Van den Berg said. “These events are not enjoyable, but they do create opportunity. Our job is to take advantage of mispricing, within a disciplined framework.”

Ninety One is not alone in seeking those opportunities. A net 81% of fund managers in a Bank of America Corp. survey conducted between April 2 and 9 see more buys than sells in South African stocks, up from 69% in the previous poll. Positioning is moving out of overweight cash and back into local equities, with half of respondents viewing South African equities as undervalued, the survey found.

“We stick to fundamentals and at this stage there’s not enough that makes us materially change our view on the fundamentals of the stocks we own in our portfolio,” said Van den Berg.

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