南非国内：机遇还是陷阱

1、14 August 2019 Global/EEMEA/SouthAfricaEquityResearchInvestmentStrategyGlobal EM Equity StrategyResearchAnalystsAlexanderRedman44 20 78836896 HYPERLINK mailto:alex.redman ArunSai44 20 78830002 HYPERLINK mailto:arun.sai STRATEGYDomestic South Africa: Opportunity or trap?Figure 1: Domestic South Afric

2、a is trading on a 12% +12m P/E discount versus emerging markets, the cheapest in almost adecade 200%Non-Domestic SA +12m P/E rel to EM180%Domestic SA +12m P/E rel to EM160%140%120%100%80%60%Jan00Jan03Jan06Jan09Jan12Jan15Jan18Source: Company data, Credit Suisse estimatesWe find evidence that value is

3、 beginning to appear in South African domestic names and thus recommend starting to accumulate greaterexposure funded by booking some profits on rand hedges while preserving an overall benchmark stance on the market in a pan-EM equity portfolio.During our June/July investor roadshow we noted that th

4、e intensity of questions we fielded relating to domestic South Africa from emergingequitymanagers had discernibly increased relative to previous trips. We believe the heightened curiosity is understandable given relative performance and valuation dynamics versus overall EM, a marked deceleration in

5、economic activity potentially signaling a trough, bond yields having almost fully converged with the EM average, and apparent foreign investor capitulation. Moreover, despite an underwhelming start in the 18 months thus far, there remains the prospect of the Ramaphosa administration enacting critica

6、l economic reforms necessary to rekindle structural economic growth.We believe the time is now more appropriate to accumulate domestic South African assets on account of the following six reasons:at USDZAR15.4 we believe the currency sufficiently reflects fiscal risk;anticipate a modest acceleration

7、 in economic activity through 2020;consumption can now recover with sturdier household balance sheets;earnings dynamics appear poised to turn in favour of domestic equities;valuations point to an attractive entry point into domestic equities; andevidence of cross asset class foreign investor capitul

8、ation onSA.We screen for domestic South African value creating yield plays which include Firstrand, Standard Bank, Vodacom Group, Sanlam, NedbankGroup, RMB Holdings, Exxaro Resources and Mr Price.OF THIS THE OF US to do in its As a be have a of of Focus chartsFigure 2: Over the past four years SA do

9、mestic plays have underperformed rand hedges by45% SA SADomesticvs.Non-Domesticequities100Figure 3: The 500+bps real carry on SA government debt is the most attractive in at least twodecades S.Africa 10Y bond over avg. of US treasuries and S.Africa 10Y bond over avg. of US treasuries and Bunds590480

10、370260150040Jan Jan04JanJan10Jan13Jan16Jan-1Jan 00Jan 04Jan 08Jan 12Jan 16Jan 20Source: MSCI, CreditSuisseresearchSource: Thomson Reuters, Credit SuisseresearchFigure 4: SA 1Q19 real GDP growth is the weakest (ex GFC) in 27 years, marking a trough in ourviewFigure 5: A steepening in the shape of the

11、 SA yield curve is typically indicative of a recovery inGDPSouthAfricarealSouthAfricareal(QoQSAannualised)1Q201962.041.020.00-2-1.0-4-2.0Jan02Jan06Jan10Jan14Jan2.51.0-0.5-2.0-3.5-5.0Jan 22-6Jan90Jan95Jan00Jan05Jan10Jan15JanSAyieldcurve(10Yless2Y,ppt,pushedforwardby12m,LHS)SArealGDPmomentum(YoY%chgle

12、ssprev4-qtraver,RHS)Source: Oxford Economics, CreditSuisseresearchSource: Thomson Reuters, Oxford Economics forecasts, Credit SuisseresearchFigure 6: Domestic SA EPS revisions are the most depressed since 2009 and will recover in ourviewFigure 7: There is evidence of cross-asset class capitulation b

13、y foreign investors on SouthAfricaDomestic SA breadth of earnings revisionsDomestic SA yoy performance (rhs)15%Domestic SA breadth of earnings revisionsDomestic SA yoy performance (rhs)10%5%0%-5%-10%-15%-20%Jan05Jan08Jan11Jan14Jan17115%90%65%40%15%-10%-35%-60%6%4%2%0%-2%-4%Jan01Jan04Jan07Jan10Jan13J

14、an16Jan19Net SA bonds bought by foreigners (12m rolling, % of GDP) Net SA equities bought by foreigners (12m rolling, % of GDP)Source: IBES, MSCI, CreditSuisseresearchSource: FTSE/JSE, Credit SuisseresearchDomestic South Africa: Opportunity or trap?We find evidence that value is beginning to appear

15、in South African domestic names and thus recommend starting to accumulate greater exposure funded by booking some profits on rand hedges while preserving an overall benchmark stance on the market in a pan- emerging markets equity portfolio.The US dollar performance of MSCI South Africa has broadly k

16、ept pace with the MSCI emerging markets index over the last 12 months, over which time we have maintained a neutral recommendation on the country. Indeed, given the South African equity markets notable characteristic as a proxy for emerging market performance (by virtue of its geographically diversi

17、fied revenue streamsee Appendix), we have historically rarely deviated from a recommended position on the market in line with that of the MSCI benchmark weight.However, the trajectory of the MSCI South Africa index masks substantial bifurcation in performance between domestically-oriented stocks and

18、 rand hedges (primarily non- domestic revenue generating names), which represent an approximate 50/50 split in market capitalisation index weight with the latter defined sector-wise as internet retail (i.e. Naspers), mining, wireless telecoms (MTN), industrial conglomerates (Bidvest Group), paper (S

19、appi) and pharmaceuticals (Aspen), with the former having a particular concentration in financial and consumer names.Since August 2015 domestic South Africa has underperformed MSCI EM by 42% in US dollar terms versus 7% outperformance for the rand hedges over the period, thus fully unwinding seven y

20、ears worth of outperformance of EM by domestic South Africa delivered between August 2008 and August 2015. Over the same durationthe past four years South Africa domestic plays have underperformed the rand hedges by 45%.Figure 8: South Africa domestic and non-domestic* price performance relative to

21、MSCI EM (US$ terms) Domestic SA rel. MSCI Domestic SA rel. MSCIEMNon-domestic SA* rel. MSCI EMFigure 9: South African domestic equities relative to rand hedges priceperformanceSADomesticSADomesticvs.Non-Domesticequities1001009080807060605040Jan Jan04Jan07Jan10Jan13Jan16Jan1940Jan Jan04Jan07Jan10Jan1

22、3Jan16Jan19Internet retail, mining, wireless telecom, industrial conglomerates, paper and pharmaceuticals. Source: MSCI, Credit SuisseresearchInternet retail, mining, wireless telecom, industrial conglomerates, paper and pharmaceuticals. Source: MSCI, Credit SuisseresearchWe highlighted in our 29 Ju

23、ly investor roadshow feedback report (see HYPERLINK /s/V7iKzi4AF-VCnc Whats on your mind HYPERLINK /s/V7iKzi4AF-VCnc for the rest of 2019?) that the intensity of questions we fielded relating to domestic South Africa from emerging equity managers had discernibly increased relative to previous trips.

24、The heightened curiosity is understandable given the progression of relative performance and valuation dynamics versus overall emerging markets, a marked deceleration in economic activity potentially signaling a trough, bond yields having almost fully convergedwith the emerging market (EMBI) average

25、, and apparent foreign investor capitulation across South African asset classes. Moreover, despite an underwhelming start in the 18 months thus far, there remains the prospect of the Ramaphosa administration enacting critical economic reforms necessary to rekindle structural economic growth.Six reas

26、ons to accumulate domestic South AfricaThis is not the first time in recent years that investor interest has piqued in domestic South Africa, albeit that the previous occasion proved a false start.Subsequent to the December 2017 transition of the ANC Presidency (and by implication the Presidency of

27、South Africa) from Jacob Zuma to Cyril Ramaphosa, we found investors were keen to draw parallels with the transition of power in Brazil from Dilma Rousseff to Michel Temer, which began in earnest after the December 2015 decision by the president of the Chamber of Deputies Eduardo Cunha to launch imp

28、eachment proceedings against president Rousseff.In itself this was an exciting proposition: The IBOVESPA gained 84% in a little over 12 months between late January 2016 and mid-February 2017 with a 36% concurrent nominal strengthening of the Brazilian real (versus the US dollar) adding up to a 133%

29、US dollar gain in the MSCI Brazil index over the duration outperforming the MSCI EM by72%.However, we argued then that the parallels were superficial and did not withstand further scrutiny beyond the immediate similarities in news headlines (see HYPERLINK /r/V7bfcp2AF-VCnc South Africa is not the HY

30、PERLINK /r/V7bfcp2AF-VCnc next Brazil,12 March 2018) albeit that both nations suffer from HYPERLINK /cpi2018 endemic corruption and will need to work hard to restore faith and empathy with their political classes. Moreover, both countries are beset by low growth, swollen unemployment, inflexible lab

31、our policy, deteriorating security situations, highly uneven income and wealth distribution and highly indebted (and deleveraging) households.But that was then and this is now.In contrast to 1Q2018, we believe the time is now more appropriate to commence re- accumulating domestic South African asset

32、s on account of the following six reasons:At USDZAR15.4 we believe the currency sufficiently reflects fiscalriskFirst and foremost in deciding the investment case for domestic South Africa is formulating an outlook for the rand, the trajectory of which has been instrumental in determining the relati

33、ve performance of domestic South Africa for at least the last two decades.Figure 10: Domestic SA performance relative to MSCI EM versusUSDZAR16045%14030%12015%1000%80-15%60-30%40Jan 00Jan02Jan04Jan Jan08Jan10Jan Jan 14Jan16Jan -45%Jan 20Shaded = rand weakness relative to trend / unshaded = strength

34、Domestic SA rel. MSCI EM (US$, rebased to 100, LHS) USDZAR (% deviation from trend, RHS)Source: Thomson Reuters, MSCI, Credit Suisse researchIn nominal terms, USDZAR is trading at the weakest level since June 2016 as fiscal concerns primarily relating to the burgeoning state bailout of Eskom increas

35、e the likelihood of a critical credit rating downgrade by Moodys which would precipitate South Africas exclusion from a major global fixed income benchmark (see discussion below).Nevertheless, in support of the South African rand stabilizing from here we find that:The 500+bps real carry on South Afr

36、ican government debt is the most attractive in at least two decades. The inflation-adjusted spread of South African 10Y government debt over the average of bunds and treasuries at 506bps is the highest in the data we have which extends back to the year 2000, and now offers the second highest real ca

37、rry among mainstream emerging markets after Indonesia (533bps) and now ahead of Brazil (497bps) and Mexico(451bps).Indeed, South African sovereign bond yields have almost fully converged (now just a 30bps negative spread) with emerging market (EMBI) benchmark yields, reflective of the deterioration

38、in the formers fiscal and public sector debt dynamics versus emerging market peers (see below). Although note that the EMBI Global bond index is far more skewed towards Latin America (34% weight) and EEMEA (27% weight) than the MSCI EM equitybenchmark.Figure 11: South Africa real carry trade: inflat

39、ion adjusted spread of 10Y bond yield over average of bunds and treasuries(ppt)65Figure 12: South Africa relative to EM sovereign dollar bond (EMBI) yields(%)9%8%7%43210-1Jan 00Jan 04Jan 08Jan 12Jan 16Jan 6%5%4%3%2%1%0%-1%-2%-3%Jan 09 Jan 11 Jan 13 Jan 15 Jan 17 Jan 19JPM EMBIGlobal CompositeJPMEMBI

40、Global South South spread over CompositeSource: Thomson Reuters, CreditSuisseresearchSource:theBLOOMBERGPROFESSIONALservice,ThomsonReuters,CreditSuisse researchThe rand appears cheap versus recent history on REER and PPP. South Africas real effective exchange rate is at the lower end of its three-ye

41、ar trading range as is the countrys negative deviation from PPP at58%.In the short term, the 25% year-on-year gold price appreciation should help offset the longer-term negative influence on the rand from the countrys gradual structural decline in global export market share as dwindling precious met

42、al production output remains uncompensated by a ramping-up in manufacturing sector exports (see discussion below).Our forecast for a near-term strengthening in South Africas external position is consistent with modest rand appreciation from here. We proxy South Africas immediate external vulnerabili

43、ties using the basic balance of payments funding gap essentially the unfunded portion of the current account deficit adjusted for (i.e. added to) net FDI and net equity and debt portfolio flows. The funding gap, which hashistoricallyatleast for the past 15 yearsaveraged a 0.5% of GDP deficit, must b

44、e funded by either borrowing or FX reserve depletion, neither of which are sustainable over the longer term. Hence there is a close association between the time series of the funding gap and the momentum of South Africas currency given the latter is the ultimate arbiter of the countrys external risk

45、.Credit Suisse South Africa economist Alexey Pogorelov is forecasting a narrowing of South Africas current account deficit in 2019 to 3.0% of GDP from 3.7% of GDP in 2018, and a swing of net FDI in 2019 to a net inflow of 1.4% of GDP from a net outflow of 1.6% of GDP in 2018 (see HYPERLINK /r/V7hyTs

46、2AF-VCnc Emerging Markets Quarterly: Q3 2019, 2 July 2019) principally owing to a scaling up of Chinese infrastructure investment in the country following President Xis July 2018 visit. By using either the last 12-month or 10-year historical average net equity and debt portfolio flows as a projectio

47、n for the total 2019 calendar year yields the same result for a forecast for the overall basic balance of payments funding gap at a 1.4% of GDP surplus, historically consistent with mid-single digit percentage year-on-year nominal strengthening of therand.Figure 13: South Africa REER versus share of

48、 globalexportsFigure 14: South Africa balance of payments funding gap* versusrandSouth Africa REER (1987 =100)South Africa: % of world exports (RHS)900.64% USDZAR (yoy % chg,LHS)South Africa REER (1987 =100)South Africa: % of world exports (RHS)8040%30%20%Fundinggap*(12mrolling,%GDP,RHS)ZAR yoystren

49、gthZAR yoyZAR yoystrengthZAR yoyweakness3.9%2.8%7010%0%1.7%0.6%-10%-0.5%60-20%-30%-1.6%-2.7%-40%-3.8%50-50%-4.9%Jan08Jan10Jan12Jan14Jan16Jan18Jan20Jan-05Jan-08Jan-11Jan-14Jan-17Jan-20Source: Thomson Reuters, CreditSuisseresearchSource: Thomson Reuters, Credit Suisse research *basic balance of paymen

50、ts plus net portfolioflowsThe market typically discounts credit rating downgrades in advance. In our view, the immediate risk overhang for the rand is the threat of an imminent credit rating downgrade by Moodys. The agencys next scheduled review of South Africas sovereign debt is for 1 November 2019

51、; however, Moodys made an unscheduled issuer comment on 24 July describing the government of South Africas HYPERLINK /research/Government-of-South-Africa-Government-proposal-to-more-than-double-Issuer-Comment-PBC_1187207 proposal to more than double support HYPERLINK /research/Government-of-South-Af

52、rica-Government-proposal-to-more-than-double-Issuer-Comment-PBC_1187207 to Eskom as credit negative, stating that additional support to Eskom in the special appropriation bill will adversely pressure the governments fiscal position, given its limited room to absorb the extracost.Although President R

53、amaphosa has revamped Eskoms management board, reinstated Pravin Gordhan (who is viewed positively by the market) to cabinet as minister of public enterprises (SOEs), and announced the restructuring of the power utility, Eskom remains the largest single threat to the South African economy both fisca

54、lly and as an impediment to growth owing to lack of generating capacity. To maintain Eskoms immediate solvency, the government is allocating an additional R59bn to the company over two years on top of the R23bn annual instalment Eskom receives from the budget assistance plan of R230bnover ten years,

55、 equivalent to a total burden on the public sector of c1% of GDP for fiscal year 2019/20.Moodys stance on these matters is crucial to the South African financial markets. As Credit Suisse FX Strategists highlight, if Moodys cuts its rating for South Africas local- currency denominated government bon

56、ds then they will have to exit the FTSE World Government Bond Index (WGBI), resulting in sizeable fixed income portfolio outflows from South Africa (see HYPERLINK /r/V7iMGL2AD-WjcF FX Compass: Talkings tough, 31 July 2019). This is on account of Moodys remaining the only rating agency which still cr

57、edits those bonds with an investment grade rating (Baa3), and the bonds may remain in the WGBI only as long as they sustain an investment grade rating from at least one ratingsagency.WGBI exclusions thus far this decadenotably Greece (2010) and Portugal (2012)have typically been associated with a sp

58、ike up in bond yields on account of heavy foreign net selling by benchmarked fixed income funds. Approximately US$3trn of fixed income assets track the WGBI within which South Africa (included since October 2012) at a weight of 0.37% represents about US$11bn of bonds which may be put at risk of forc

59、edselling.Having once been a posterchild for government fiscal prudence, the turning point in the relative trajectory of South Africas public debt to revenue ratio compared to that of overall emerging markets coincided with Jacob Zumas transition to power in 2009. Government expenditure has bloated

60、from 24.6% to 30.6% of GDP over the last ten years, inflated by a mushrooming civil service wage bill and reportedly the alleged rent-seeking practices of the Zuma administration, currently under HYPERLINK .za/ a judicial commission of inquiry into allegations of HYPERLINK .za/ state capture. Meanwh