26 Apr

Investec Money Manager Upbeat on Growth in South Africa

South Africa’s economy is under new management, and Investec’s Chris Freund is among equities investors who are expecting growth to surprise to the upside.

President Cyril Ramaphosa, in office since February, is spurring optimism among stock traders who are already noting changes in Africa’s most industrialized market.

The new leader has set a goal of attracting $100 billion in investment, overhauled his cabinet and installed new boards at troubled state-owned companies.

“People are going to be surprised how South African growth rates are revised upwards,” Freund, the Cape Town-based South African multi-asset head for Investec Asset Management Ltd., which oversees about $140 billion for clients globally, said in an interview. “We are bulls on South Africa’s economy.”

Freund is not alone. Morgan Stanley upgraded South African equities to overweight on Wednesday and said its forecasts for economic growth are above consensus for this year and next.

Business confidence is recovering and political risk has fallen since Ramaphosa replaced Jacob Zuma as president, with private investment and household consumption heading higher.

On top of that, valuations are attractive: stocks traded on the Johannesburg exchange are at their cheapest since February 2010 on a price-to-earnings basis, Morgan Stanley said.

The improving confidence and economic outlook are conditions Freund is looking to make the most of for the 23 billion-rand ($1.8 billion) Discovery Invest Balanced Fund, the flagship mutual fund he helps manage for Discovery Invest, a division of Discovery Ltd., owner of South Africa’s largest medical-insurance administrator.

“We think that equity markets around the world are mildly expensive, but the more important thing is that the growth cycle is still with us, and so it’s time to try and make clients money,” Freund said.

South African stocks make up 45 percent of the Balanced Fund, with Naspers Ltd. its biggest holding at 3.5 percent. The fund has returned 7.7 percent in the past year, better than the 5.1 percent achieved by its peers, data compiled by Bloomberg show.

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