Old Mutual upbeat on SA`s outlook
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Old Mutual warns on pessimism
Financial Times
IT IS probably more difficult to untangle fund management from political and social issues in SA than anywhere else in the world.
The complexities of the transition from apartheid to a broader economy create opportunities and challenges for investors. Peter Leger, the manager of the Old Mutual SA fund, says that the market suffers from what he calls `Afropessimism`.
Foreign investors, usually ignorant of South African society, tend to assume the problems are bigger than they are. `The big question that always comes up is: what`s stopping SA from going the route of Zimbabwe?`
Leger does not entirely dismiss such arguments: `There`s a level of validity to the concerns.` But he says they are overdone. `The risk is if you don`t understand these issues you will mark the market down 20%-25%.`
He is supportive of the process of black economic empowerment favoured by the African National Congress (ANC) as an alternative to the expropriation of white property. Empowerment involves steadily increasing the stake that black people have in business by encouraging the development of black investors, suppliers and senior employees.
Leger says that in the South African context `the need for it is quite obvious`. Indeed he argues that a decade of post-apartheid economic management by the ANC has created the basis for an economic takeoff.
Back in 1994 many were expecting the ANC to engage in `socialistic redistribution`. Instead, it has been fiscally stringent and made fighting inflation a priority. Both state finances and the private sector are in good shape.
If Leger is right, then now would be a good time to invest in SA. If investors understand that the pessimism is exaggerated, the market could be rerated. Consistently stronger growth will also bolster the market, he says.
The Old Mutual SA fund, a UK-listed investment trust, aims to make the most of the market`s potential.
`What we try to do is to put a portfolio together that taps into positive trends in SA,` Leger says.
The investment trust increased 59,96% on a total return basis in sterling in the three years to September 30 this year, according to Lipper Hindsight.
It is essentially a stock-picking fund in which he searches for companies that offer growth at a reasonable price.
To the extent that there are deep-value stocks (companies that are very cheap by various measures) in SA, he tends to avoid them. The fund`s benchmark is the FTSE/JSE Securities Exchange SA all share index.
Leger generally takes underweight positions in the market`s largest companies such as Anglo American (resources), BHP Billiton (resources) and Richemont (luxury goods). These companies are well known to analysts, so it is hard to outperform the market with superior knowledge of their qualities.
But relatively few investors know much about SA`s mediumsized and smaller companies. The largest sectors of the economy (as a percentage of gross domestic product) are services, including financials, made up of firms such as Absa, Investec, Standard Bank and Old Mutual itself.
Leger says a key risk for investors is the sensitivity of the market to movements in the rand. He says that Old Mutual has decided not to hedge the rand in its SA fund because investors want that type of exposure.
Oct 12 2004 07:40:31:000AM Daniel Ben-Ami Business Day 1st Edition
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