JOHANNESBURG (miningweekly.com) – Leading global investment banking, securities and investment management firm Goldman Sachs is bullish on South Africa, which it regards as a favourable destination for fund managers because of the depth of its capital market and the scarcity of other emerging market options.
Goldman Sachs International MD Colin Coleman told the Frontier Forum at the Industrial Development Corporation on Wednesday that notwithstanding the local problems – which he described as self-inflicted – South Africa had the deepest capital market in the region and one of the deepest capital markets measured as market capitalisation of the Johannesburg Stock Exchange (JSE) divided by gross domestic product (GDP).
“South Africa has two times market cap to GDP, which reflects the liquidity and sophistication of the JSE, which is a very favourable destination to fund managers,” Coleman said during the presentation attended by Creamer Media’s Mining Weekly Online.
He likened investor skittishness sometimes directed towards South Africa to the early skittishness some showed towards China two decades ago.
“We used to hear that China was not a safe place to invest locally or that it was difficult to play in the local community,” he recalled.
As a result, investors were advised to invest in China through Australia by buying shares in companies that were benefiting from China’s growth, like BHP Billiton.
But factors positioning South Africa “fantastically” in the current world of investment funds were the local conditions in other emerging markets.
Local conditions in Brazil and Latin America were rendering them unattractive destinations for institutions in the short term; Turkey was difficult right now because of the local political situation and adjacencies to the Middle East; and Russia was almost untouchable because of the combination of sanctions and the local political makeup.
In contrast, South Africa offered liquid stocks that were well managed and well governed.
“So, when we look at South Africa right now, it actually occupies a very interesting place in the world,” Coleman pointed out.
Tailwinds advancing South Africa were the 5% growth rate expectation for the 800-million-population sub Saharan Africa and the peaceful election in Nigeria.
“So, 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,” said Coleman, who added that the world was expected to grow at a rate of around 3.5% this year, and 4% next year.
The US, at $16-trillion GDP, was growing at 2.8% to 2.9%, which was a major growth engine, even if not in overdrive, because of slow growth in Europe and low growth in Latin America.
China was growing at the lower percentage of 7%, but off a $10-trillion base, which translated into massive numbers, and there had been an incredible demonstration of Chinese government agility, which the South African government would do well to emulate to heal its self-inflicted Eskom, xenophopia and other wounds.
The Modi phenomenon in India had driven both expectations of growth and actual growth and reinforced potential for foreign direct investment, particularly in the banking and telecoms sectors in India.
Indian growth was poised to rise to 7.9% in 2016 and Asean, taking in Indonesia, Malaysia, Philippines and Singapore, was also growing off a healthy base at around 5%.
But Latin American growth would fall to 0.5% this year with Brazil in negative 0.6% growth territory, while Russian growth is 2.7% negative.
“Those economies actually make South Africa look quite good,” Coleman commented.
While the South African Treasury had put a 2% number on economic growth expectations for South Africa this year, Goldman Sachs, in triangulating for emerging markets and the economic pushes and pulls, were more bullish about South Africa at 2.3%.
“The fact is South Africa should be a 3.5% growth rate because that is the country’s real base capacity,” he added.
If South Africa just did the basics right, it would grow at 5%, and if it really excelled and produced a perfect performance, it would be at 7%.
Growing at 2.3% and 2.4%, as Goldman Sachs forecast for 2015 and 2016, was effectively the country shooting itself in the foot.