South African Stocks Set to Extend Biggest Rally in 6 Years, Investors Say
By Anne Gildersleeve
South African Stocks Poised to Extend Biggest Rally in 6 Years
Johannesburg, Nov. 7 (Bloomberg) -- South Africa's benchmark
stock index is poised to post its strongest rally in six years as
expectations of economic recovery in Asia and growth in Europe
boost platinum and other mining shares, investors say.
Rebounding prices for platinum and other metals already have
pushed up the Johannesburg All Share Index 33 percent this year,
led by Impala Platinum Holdings Ltd., the world's No. 2 platinum
miner, and De Beers, the biggest diamond producer. This has fed
down to other companies -- Sappi Ltd., the world's biggest maker
of glossy magazine paper, for example, has risen 134 percent this
year.
Further gains are likely, investors said, because a stronger
global commodities market is underpinned by accelerating domestic
economic growth. This year's boom, the biggest since a 50 percent
rally in 1993, already has more than reversed a 12 percent drop
last year, when investors fled emerging markets after Russia
defaulted on some debt and Asian currencies slumped.
``There is a good chance of synchronized economic growth in
the whole world, and that will be beneficial to commodity demand
and commodity prices,' said Michael Schroder, who oversees 1.1
billion rand ($180 million) at Old Mutual Asset Managers (SA)
(Pty) Ltd. He said he favors Anglo American Plc, Anglo American
Platinum Corp., Sappi and Sasol Ltd., a synthetic fuels producer.
Accelerating economic growth in Europe is important because
the region is South Africa's biggest foreign market, accounting
for 33 percent of exports in the first nine months of this year,
according to the South African Revenue Service. Asia is No. 2,
accounting for 19 percent of exports in the same period.
Good for Gold
Economies of the 11 nations that adopted the euro will grow
2.1 percent in 1999 and 2.8 percent in 2000, the International
Monetary Fund said. Japan's economy, Asia's largest, will expand
1 percent in 1999, and 1.5 percent in 2000, the IMF forecast.
Such growth translates into increased consumption of
platinum, gold and other metals, for industrial use and for
jewelry. South Africa is the world's biggest platinum and gold
producer.
The world's No. 1 platinum miner, Anglo American Platinum,
has risen 123 percent this year, and Impala Platinum has gained
170 percent. Both are benefiting from a 16 percent rise in the
price of platinum and an 18 percent gain in a mining byproduct,
palladium.
Platinum is a ``growth industry,' said Mark Arthur, a gold
fund manager and mining resource analyst at Standard Corporate
and Merchant Bank Asset Management, which oversees 25 billion
rand. The silvery white metal is used in products ranging from
automobile exhaust systems to surgical tools to jewelry.
The All Share Index has also been boosted by a 99 percent
jump since Jan. 1 in Anglo American, the world's biggest mining
company, and a 117 percent surge in De Beers.
Domestic Revival
The Johannesburg All Gold Index has risen 35 percent this
year -- 26 percent in September alone, a month when the price of
gold for immediate delivery rose 17 percent. The surge helps
South African gold miners, which have the highest production
costs in the world.
``We're still going to see a stronger gold price,' said
Arthur.
This resurgence in the mining industry, which accounted for
7.8 percent of South Africa's gross domestic product in 1997, and
falling interest rates, are reviving the domestic economy, too.
``We expect consumer demand to pick up; we expect overall
economic activity domestically to pick up, and that will feed
through to earnings,' said Greg Eckersley, chief investment
officer of Alliance-Odyssey, which oversees 1.6 billion rand.
Prime lending rates in South Africa have declined to 15.5
percent from 23.0 percent in January. The economy grew at an
annualized rate of 1.7 percent in the second quarter, up from 0.6
percent in the first quarter.
Stock Picks
Industrial and financial shares, including South African
Breweries Plc, Pepkor Ltd. and Standard Bank Investment Corp.,
will probably benefit from the improved economic conditions in
the months ahead, said investors.
The Johannesburg Industrial Index has gained 20 percent this
year, led by Edgars Consolidated Stores Ltd., the biggest clothes
retailer. South African Breweries has gained 12 percent.
Eckersley said he favors M-Cell Ltd., which owns a stake in
one of the country's cellular telephone networks, and Old Mutual
Plc, the country's biggest insurer.
Commodity shares will also probably post further gains in
coming months, said investors, though many cautioned that gains
aren't likely to match the pace since the beginning of the year.
``The easy money has been made,' said Schroder. Even so,
``commodity prices should run until early next year.'
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