NinetyOne: SA stock valuations show market pessimistic ahead of polls

South African equities have faced a tumultuous decade, with underperformance against global markets and a series of economic challenges. However, John Biccard, Portfolio Manager at NinetyOne Value Fund, sees this as an opportunity for value investors. In a recent interview on CNBC Africa, Biccard highlighted the attractive valuations in the South African market, particularly in what he refers to as 'SA Inc.' shares, such as banks, retailers, and industrial companies. Biccard pointed out that South African equities have been heavily discounted over the past six years, with factors like disappointing structural changes, COVID-19, and political uncertainties weighing on investor sentiment. As a result, companies like ABSA Bank have seen significant declines in valuation, making them more appealing to value investors. Despite concerns about the upcoming elections and potential outcomes, Biccard remains optimistic about the long-term prospects of South African equities. He noted that the market has already priced in a lot of bad news, and the current valuation levels reflect a high degree of pessimism. In terms of specific stock picks, Biccard mentioned ABSA Bank, along with healthcare companies like Mediclinic and Life Healthcare, as preferred choices for the NinetyOne Value Fund. These companies, he believes, offer compelling value at current levels, even in the face of regulatory challenges like the National Health Insurance (NHI) bill. Looking ahead, Biccard emphasized that the overall market valuation is so low that positive developments like improved power supply and economic indicators would be a bonus rather than a necessity for returns. The focus remains on the deep value opportunities presented by South African equities. In conclusion, Biccard's perspective offers a contrarian view on the South African market, where pessimism has led to attractive valuations for discerning investors. Despite the uncertainties surrounding the elections and economic challenges, Biccard sees potential for significant upside in select stocks within the South African market.