Staff Writer
South African equities underperformed broader emerging markets in April, with the MSCI South Africa index rising by 1.4% in US dollar terms compared to a 14.5% gain for emerging markets overall, according to the latest strategy report by Simonis Storm Securities.
The report said the 13-percentage point gap reflects ongoing structural challenges in the South African market, although some opportunities remain in defence retailers, telecommunications and diversified mining companies.
Simonis Storm identified Shoprite Holdings, Clicks Group, Naspers, MTN Group, Glencore and Omnia Holdings as its preferred overweight positions.
The report said Shoprite remains attractive because of its defensive food retail position and “strongest wallet-share capture”, while Clicks continues to benefit from stable demand in pharmacy and beauty retail.
Simonis Storm upgraded Naspers and Prosus, saying the discount to Tencent-linked net asset value remains too wide despite a 19% decline since the start of the year.
MTN was identified as a beneficiary of an improving telecoms outlook across emerging markets and stronger oil-linked revenues in some African countries.
Glencore was favoured for its coal cash flows, copper exposure and trading opportunities linked to market volatility. Omnia was backed for its pricing strength in agricultural and mining inputs.
Among sectors, telecommunications recorded the strongest gains on the MSCI South Africa index during April, followed by healthcare and financials. Precious metals and basic materials underperformed.
The report showed that the best-performing South African shares so far this year were Sasol, which rose 117%, Thungela Resources, up 51%, and Glencore, which gained 41%.
On the downside, Sappi fell 34% and SPAR Group declined 32%, while Naspers lost 19%.
Simonis Storm warned that South Africa faces a difficult economic environment as higher oil prices combine with the growing possibility of an El Niño weather event, which could increase food inflation and delay interest rate cuts by the South African Reserve Bank.
The firm expects the reserve bank to keep the repo rate unchanged at 6.75% for an extended period. It said the Monetary Policy Committee views current inflation pressures as temporary but remains cautious about easing policy too soon.
Simonis Storm said diversified miners, food retailers and telecom operators remain the strongest equity positions in the current market environment, while investors should approach interest rate-sensitive domestic sectors with caution.
