After the recent sell-off in interest rate-sensitive shares on the JSE, the share prices of retailers and, to a lesser extent, banks, now represent good value on a forward earnings basis.
In the past month, the equity market sell-off has hit these sectors particularly hard, with some stocks more than 20% off previous highs.
The local sell-off has been somewhat overdone, as usually happens in times of global market concerns.Foreign investors who held fairly large stakes in some of our companies — particularly the retailers — were selling willy-nilly for liquidity reasons as general panic over emerging markets took hold, rather than any fundamental value concerns.
As a result, the big retailers such as Edgars, Truworths, Foschini, Mr Price, JD Group and Ellerines look inexpensive on a one-year forward earnings basis. Banking stocks also look fairly attractive, despite concerns such as the investigation into bank charges.”
More generally, investors should take into account the fundamental shift in South Africa’s macroeconomic environment toward higher interest rates, a weaker rand and higher inflation.
Resource companies will definitely benefit. Apart from these counters, we are taking a closer look at industrial companies that have pricing power and are able to pass on rising costs from a weaker rand and/or higher interest rates.
Daryll Owen is chief investment officer at BoE Private Clients