SA Investment Strategy | Ramaphoria 2.0: Deja-vu: Tempering enthusiasm

Domestic asset managers appear to have added to domestic cyclical stocks including apparel retails and industrials in anticipation of a turnaround into SA national elections on 8 May. However, we remain UW SA cyclical consumer stocks (apparel retail, industrials) given headwinds from employment, negative real wage increases, increasing risk of strikes and Eskom constraints in 2H19. That said, we prefer to hedge our exposure with an Overweight on SA Food Retailers (Shoprite). Anecdotal evidence also suggests that some fund managers are trimming SA Banks. While we also forecast SA banks earnings growth to slow down near-term, we recommend buying SA Banks into weakness as they remain the key beneficiary of any fixed investment turnaround in 2H19/2020. Nedbank, Firstrand, Standard Bank are the most geared to any corporate credit pick-up related to FAI. We also remain OW SA Miners (Exxaro, Anglo) with 36% upside to earnings on spot commodity prices.