Buy the global locals – Old Mutual 

In his first quarterly update since Donald Trump’s return to the White House, Old Mutual Investment Group (OMIG) chief investment officer Siboniso Nxumalo sketched out some opportunities for investors on this side of the world.  

Think “large, diversified and global”: Bidcorp, Naspers/Prosus, AB InBev and Glencore.

They’re among the punts he and his team believe will pay off as the US market weakens, the dollar mellows and the South African stock market strengthens. 

As it is, US stocks have suffered their worst first quarter since 2022, with the S&P 500 down almost 5%.  

If you tune out all the noise around Trump’s second coming, the man at 1600 Pennsylvania Avenue really seems to be focused on two things, reckons Nxumalo. That is: cutting expenditure and increasing revenue (all in the name of reducing the US debt burden of more than $36-trillion).  

The way he goes about it is, of course, unconventional and not to everyone’s liking, like brutal cost cuts and tariffs on both friend and foe. Time will tell what the real result of these policies will be. But, says Nxumalo, this time around Trump is far less worried about the reaction of the US stock market.

And if his policies cause pain on Wall Street or push the US into recession, giving the Federal Reserve a reason to cut interest rates, it may actually help his ultimate goal, which is to refinance about $9-trillion in debt – due this year – more cheaply. 

Beyond borders

But what does it all mean for the investor on the southern tip of Africa? It’s not as if South Africa is shooting the growth lights out. The new US administration is not keen to play by South Africa’s rules, the African Growth and Opportunity Act (Agoa) is on the block and who knows what further disputes could do to our feeble economy? 

“Don’t confuse the South African economy with the South African stock market,” says Meryl Pick, OMIG’s head of equities research. If you look at the companies on the JSE Swix index, some 59% of their revenue comes from outside South Africa, she says. 

And therein lies the chance for good returns. 

OMIG likes stocks that have tentacles in many parts of the world. Bidcorp, the food business spun out of Bidvest in 2016 and which is now nearly double the size of its former parent, is a prime example. 

Bidcorp’s “decentralised” model – with local management having a big say over their own units – is a good fit for a climate where supply chains could be disrupted due to tariffs or in which certain large economies might slow down. Bidcorp is big in Australasia, Europe and emerging markets and, “apart from Covid (when everyone with links to the hospitality business took a beating) it has delivered remarkably consistent returns”, says Pick. 

OMIG says the company is well placed to expand and, at a forward p:e of about 16, is cheap to boot. 

The group also likes global brewer AB InBev, whose shares, incidentally, are lower than they were a decade ago when the company racked up a huge amount of debt to buy South Africa’s SABMiller. Even today, its borrowings are still high, which explains why the share has been shunned by many. But, says Pick, its balance sheet is now under control, and it is blessed with strong free cash flow.  

AB InBev’s problems, she argues, are not structural, but due to Covid’s long hangover and a commodities price spike caused by the war in Ukraine. 

The company is built on the idea of as many consumption occasions as possible, which is why it is wading ever deeper into alcohol-free tipples and hard seltzer. 

On Naspers, Nxumalo still sees it as a useful way to get exposure to China’s tech champion Tencent, as well as exposure to Chinese AI at a discount. The hype around AI-linked stocks in the US seems to be softening, but those in China could still offer significant value and Tencent is one of them, he reckons. 

As for commodities, OMIG is lessening its exposure to iron ore, but upping its positions in copper, platinum group metals and coal. Nxumalo and Pick believe the green energy transition could now take longer than anticipated. That explains their large holdings of commodities giant Glencore. 

And in the financial sector, OMIG is not all-in, but still holding on to chunks of Nedbank and FirstRand. 

In all, it’s not absolute optimism about South African stocks, but more about getting the mix right in a climate where the world’s largest economy is anything but a predictable bet. 

_{Top image: Gallo Images/Sydney Seshibedi.}