South Africa’s change in leadership marks an inflection point for a downtrodden market and now is the time to tap it before a huge post-Zuma surge kicks in, T. Rowe Price’s Oliver Bell has said.
The Citywire A-rated manager, who runs the T. Rowe Middle East & Africa Equity fund, said he has been purchasing domestic South African equities in recent months amid the changing political landscape, with Cyril Ramaphosa coming to power.
In a comment to Citywire Selector, Bell said the developments come at a time when South Africa is at a cyclical bottom in economic terms. A strong change in leadership could be a much-needed catalyst for change.
‘The anti-corruption drive is absolutely vital to restore confidence in a country where such confidence has been sapped over recent years, as headline news of alleged corruption has implicated former president Zuma and a patronage network beneath him. Zuma’s resignation is an indication about how serious the country is to tackling this.’
‘With Ramaphosa – a former union leader and subsequently a very successful and now wealthy businessman – leading the country, we expect to see a cleaning out of all those implicated and a restoration of the strength of institutions South Africa has always had.’
Bell said both the South African market and the rand had experienced tough months as the political outlook was uncertain and there is little positivity on the ground in the country. However, he said with a cabinet reshuffle and a new budget imminent, this could change.
‘This could lead to a delay in the credit rating downgrade by Moody’s and thus lead to interest rate cuts by the staunchly independent central bank, reinforcing the positive virtuous circle.
‘Positive macroeconomic figures may surprise in coming quarters – largely due to underestimated pent-up demand and a restoration of confidence, which will then be reinforced by likely structural reforms from the new government.’
South Africa is the largest overweight in Bell’s Middle Easy & Africa fund, accounting for 44% of exposure at the end of January. This is a slight reduction from the 48.9% held at the end of December, but it remains a huge aspect of the 15-country fund.
On a three-year basis, the T. Rowe Middle East & Africa Equity fund returned 9.5% in US dollar terms. The S&P Pan Arab Composite TR rose 1.5% over the same period to the end of January 2018.