South Africa offers "remarkably high" real cash rates in a world of negative yields, attractive long-term government bond yields, long-term growth in household wealth, reasonably anchored inflation expectations, and low valuation multiplies and double-digit earnings growth excluding Naspers, which taken collectively are an anomaly in global markets.
Speaking at the Morningstar conferences in Johannesburg and Cape Town, Needham said although the markets had been through a challenging five-year period, current asset prices are well set-up for prospective returns, and many South African investment managers he met within South Africa were "cautiously optimistic".
“The capital markets in South Africa look relatively attractive right now. We know there are several issues being dealt with that will take time, but positive change is underway, and from an outsider’s perspective, the market looks good. We don’t like pessimism, but we like the prices that pessimism brings, and we’re seeing pessimism in spades."
His view was echoed by John Green, co-CEO at Investec Asset Management, who said one of the things that investors valued most in the market was the sophisticated advisory ecosystem.
“We manage roughly R2trn of assets for clients around the world, of which about 35% is from South Africa and this year, the South African business has been the best-performing in the world. South Africa is a core part of our business with positive growth prospects,” he said.
Other speakers included former Morningstar analyst David O’Leary, now founder and principal of Kind Wealth in Toronto, Canada, who said the industry is going through unprecedented change, driven by regulatory, technology and social advances.
The social aspect is driving significant shifts in how people spend and invest their money, with investors increasingly looking for how companies make a positive contribution to society. At the same time, the amount of wealth being controlled by women is growing rapidly and will reach an estimated $70trn by 2020, according to O’Leary.
Diana Strandberg, senior vice president and director of international equity at the San Francisco-based Dodge & Cox, talked about the case for value investing in a tough market. “This is an incredibly rewarding time to be in value investing. But it’s tough – when the going gets tough, investors are tempted to flee. Don’t flee. Lean further in, or at least stay the course,” she said.
PSG’s CEO, Anet Ahern, said there was "a lot of value" in smaller and mid-cap stocks: “it’s a really good opportunity if you take a longer-term view. Things don’t even have to get better – they just have to get less bad".
Piet Naude, professor of ethics and a director at the University of Stellenbosch Business School, said the recent meltdown in ethics in South Africa was due to several key factors, including an exaggerated search for social approval; a lack of consequences for actions; governance and culture failures; and people "over-estimating their moral character".
