Goldman Sachs Bullish On South Africa Despite Local Problems
By Martin Creamer | From MiningWeekly
Goldman Sachs is bullish on South Africa, saying it’s a favorable destination for fund managers because of the relative lack of competition from other emerging markets and the depth of its capital market.
Colin Coleman is international managing director of the Manhattan-based global investment banking, securities and management firm.
Coleman spoke Wednesday at a forum at the Industrial Development Corp., a development finance institution owned by the South African government that promotes economic growth.
Despite South Africa’s self-inflicted local problems, Coleman said the country has the region’s deepest capital markets measured as market capitalization of the Johannesburg Stock Exchange divided by gross domestic product.
“South Africa has two times market cap to GDP, which reflects the liquidity and sophistication of the JSE, which is a very favorable destination to fund managers,” Coleman said.
Investor skittishness sometimes directed towards South Africa is comparable to the skittishness some investors had towards China 20 years ago, Coleman said.
But local conditions in other emerging markets are making South Africa look good in the world of investment funds, he said.
Local conditions in Brazil and Latin America are making them unattractive destinations for institutions in the short term, according to Coleman. Turkey’s local politics and closeness to the Middle East is a problem, he said. Russia is almost untouchable because of sanctions and local politics. South Africa, by contrast, offers liquid stocks that are well governed and well managed.
Peaceful elections in Nigeria and a 5-percent expected economic growth rate in the 800-million sub-Sahara populations are all helping South Africa.
“When we look at South Africa right now, it actually occupies a very interesting place in the world,” Coleman said. “…self-inflicted wounds aside, this is a world where we have sub-Saharan Africa at our backs, emerging market scarcity pointing to South Africa and the JSE, and very well run and governed companies being the platform for playing that growth.”
Coleman described the U.S. GDP as being “in overdrive” because of slow growth in Europe and low growth in Latin America.
Latin American growth is expected to fall to 0.5 percent growth this year with Brazil at a minus-0.6-percent recession. Russia is in a minus 2.7-percent recession.
“Those economies actually make South Africa look quite good,” Coleman said.
The South African Treasury pegged economic growth expectations at 2 percent this year. Goldman Sachs is more bullish about South Africa at 2.3 percent.
“The fact is South Africa should be a 3.5 percent growth rate because that is the country’s real base capacity,” he said. If South Africa just did the basics right, it would grow at 5 percent, and if it really excelled and produced a perfect performance, it would be at 7 percent.”
Goldman Sachs forecast the South African economy to grow at 2.3 percent in 2015 and 2.4 percent in 2016.
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