The JSE hit new highs recently, breaking the important psychological level of 17 000. Most of this year’s gains have been on the back of the consumer party and the China effect, which has driven companies’ earnings in the retail and commodity sectors.
According to Graeme Korner of Standard Equity Advisory Services, much of the market’s strength has been driven by foreign buyers.
This year, foreigners have been net buyers of shares to the tune of more than R44-billion. Historically, foreigners would stick to commodity or resource shares when investing in South Africa, but recently they have been buying across the sectors.
“While the figures are not completely reliable, it would seem that over the past year foreigners have been buying South Africa Incorporated. They have been investing in companies like Edcon and Imperial, which benefited from the economic miracle,” says Korner.
One analyst says the JSE is benefitting from investors making emerging economies the “flavour of the year”. This is partly because these economies have offered better returns than the United States, for example, which has been flat.
There are warnings, however, that the consumer party is starting to shift down a gear, so what is the next big kicker for the economy? Analysts cite infrastructure spend.
About R275-billion in infrastructural projects has already been announced by the government and the private sector. Even if only half of these projects get off the ground, it will be enough to have a major impact on the economy.
Financial services company Sasfin says that, as consumer spending runs out of steam, capital expenditure by the government and the private sector will fuel economic growth as part of the government’s strategy to reach a 6% growth rate by 2014.
David Shapiro, portfolio manager at Sasfin, says a broad range of companies are set to benefit, including big construction firms such as Murray & Roberts, Group Five and Aveng, as well as their suppliers PPC, Barlowworld and Afrox.
Hardware suppliers such as Massmart’s Builders’ Warehouse and Cashbuild, which has a strong presence in rural areas, will benefit from residential growth in the lower income areas, and even Mr Price Home, which supplies low-cost home goods, should see a slice of the action.
Shapiro says that, although the larger companies may be the first to benefit, there will be a trickle-down to smaller companies as the benefits work their way into the economy.
But, Shapiro warns, this expected boom is dependent on the government’s ability to stick to its agenda and deliver.
“We have not seen a grand plan yet and there are problems with lack of skills. These need to be addressed.”
Shapiro says investors need to be aware that this is a long-term investment and should not to expect high returns in the short term.
Benefit from the building boom
For investors who want exposure to the infrastructure boom, Sasfin has launched a fund that invests in companies set to benefit from the government’s commitment to infrastructural spend, the eradication of disease and poverty, and developing the Africa continent.
The Sasfin TwentyTen Fund will invest in companies exposed to the building, construction, engineering, retail, food and telecommunications sectors. The list of potential investments will be updated on a regular basis.
The minimum investment into Sasfin TwentyTen is R5 000 as a lump sum or R250 a month.