Investors may be leery about investing in South Africa, but living with some volatility and ambiguity might reap rewards, says Chris Cornell, director at BoE Stockbrokers.
Cornell has come out in favour of South Africa’s short- to medium-term investment climate, pointing out that the bulk of middle-class growth will take place in developing countries as it flattens in Europe and the United States.
With about 4,9-billion people expected to comprise the middle class in 2030 (up from 1,8-billion in 2000), this indicates a burgeoning economy.
Cornell says the market implications of this suggest a growing demand for financial services and consumer goods. Rapid, massive urbanisation typically drives a demand for commodities and more global growth means more trade.
“The markets will be volatile, though,” Cornell warns.
In eight years’ time (by 2019), our population will be 6% bigger — that’s 53-million more people. The economy will be 29% bigger and per capita income will grow by about 21%, says Cornell. It’s also predicted that 2,3-million more people will be formally employed.
This is impressive growth — if income really will be three times higher in 2030 than it was in the 1980s, as expected.
Because of this, Cornell says that Africa holds great investment potential, along with Latin America and the Middle East, even though Asia dominates opportunities at the moment.
What about stability?
The “foreboding mood and dark expectations” reflected in the media shouldn’t put you off when it comes to stability concerns, says BOE Private Clients’ political analyst, JP Landman. He suggests investors look at trends rather than news headlines when making investment decisions, saying the main trends since 2007 (Polokwane’s political changing of the guard) have been an increase in public sector investment and the removal of binding constraints.
“The courts and other institutions have also continued to demonstrate their independence,” he says.
We have a tough monetary policy, fiscal probity and a floating currency — all basic building blocks of an open economy. At the same time, the Expropriation Bill hasn’t been passed and the anticipated National Health Insurance hasn’t been hastily rushed into being. Nor have ruling party loyalists hijacked the Constitutional Court.
Landman says population growth will ensure more consumers and taxpayers, so the social base of society will strengthen.
“South Africa is not the miracle nation of 1994, but we are also not falling apart. We are a normal, developing country with the aches and pains, but also the opportunities, which the term ‘developing’ implies,” he says.
“The skill one needs is the ability to live with the ambiguity. As an investor, if you could make money the past 15 years, you should be able to make money during the next eight.”
Sometimes a dose of optimism is just the ticket.
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