Local stocks are “significantly overvalued” after a surge in metal prices boosted companies including Anglo American and BHP Billiton, according to Investec Asset Management.
|||Local stocks are “significantly overvalued” after a surge in metal prices boosted companies including Anglo American and BHP Billiton, according to Investec Asset Management.
Anglo American, the diversified mining company that makes up 11 percent of South Africa’s benchmark stock index, has risen 26 percent since the beginning of the fourth quarter of last year, beating the 7.4 percent return for the index. BHP Billiton has climbed 17 percent.
“I’ll say the market will struggle from here on,” said Sam Houlie, who oversees about R120 billion as head of South African equities at Investec. “I’m looking for places to hide because I think the market is over-extended.”
The all share index has advanced 42 percent since March 2009. Mining firms account for 35.5 percent of the shares, including London-based Anglo and BHP Billiton, and Johannesburg-based Impala Platinum and African Rainbow Minerals, JSE data show.
Houlie said the rally in metals, spurred by China’s 9.8 percent economic growth last year, might have run its course.
Investec is avoiding Anglo and BHP Billiton and stocks that led the rally, including Naspers, Africa’s biggest media company, Richemont, the world’s largest jewellery maker, and SABMiller.
“The top stocks will struggle, but stocks that are lagging will struggle less,” Houlie said.
“There is a great contrarian opportunity in avoiding the market leadership.”
The rand, which has gained 8.6 percent against the dollar in the past year, is poised to weaken, spurring gains for companies that have lagged behind the index because they earn revenue overseas, according to Houlie.
MTN Group, Africa’s biggest cellphone company, has climbed 7.4 percent since the start of the fourth quarter. MTN, which earns most of its revenue outside South Africa, is “20 percent to 40 percent undervalued at current levels”, according to Houlie.
Harmony Gold sells its gold for dollars though its costs are mostly in rand as its mines are chiefly in South Africa. Harmony surged 12 percent on Thursday after RBC Capital Markets upgraded the stock because it may become a takeover target, but it fell 3.5 percent on Friday after its chief executive denied the speculation.
The company was among Houlies’s top two picks, he said on Thursday. – Bloomberg
Source: http://www.iol.co.za/investec-says-jse-overvauled-1.1048484
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