SA Banks | Heightened risk
SA banks' earnings growth is geared to SA economic growth prospects. Over the last 15 years, SA banks' earnings (using the JSE Banks Index) had a 2.6x beta to SA nominal GDP. We believe the SA economy is vulnerable to a global economic slowdown due to unsustainable SA government debt levels and stagnant economic growth. Early signs of a deflationary depression are evident in the SA economy. We are concerned that asset prices could deteriorate significantly if SA economic reforms remain too slow, inadequate or further fuel the crisis. We have adjusted our risk premiums (58bps average increase in cost of equity) for SA banks to reflect the challenging operating conditions. Despite the forecast risk, we expect a one-year total return of 10.9% for the JSE Banks Index. ABSA and Standard Bank are our top picks.
Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.
Our research quality is consistently recognised in local and global surveys, with 18 analysts currently rated in their respective sectors (FM 2017). Value add through in-depth, innovative, high quality and consistent research with comprehensive underlying fundamental modelling supported by regular analyst and roadshow interactions.
Avior has proven that by working closely with our clients we can mutually develop dominant positions in certain sectors, going from strength to strength. Avior has a dedicated ESG team, having been ranked #1 in Corporate Governance research since 2008.
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