CEEMEA Strategy Notebook:SA Equities &The Economic Recovery Trade

Economy Troughing — Although we expect no growth from the South Africaneconomy this year, we expect growth to accelerate to 1.0% in 2017 & 1.7% in 2018.

    At the same time, inflation is set to moderate back to within the SARBs 6% ceiling.

    Market Flying — The MSCI South Africa index is now the best performingCEEMEA market ytd up 24% in $US terms, and 52% from its January 20 low point.

    More than half this performance has come from the Rands strong rebound.

    Equities Look Through Cycles — An improving economic outlook and a turn inthe currency is usually a signal to rotate out of the exporters and back into thebeaten down stocks with domestic earnings. The experiences from Russian andBrazil over the last 12 months proved textbook examples of this strategies success.

    Shift to Underperforming Domestic — SA improving economic fundamentalsshould favour its more GDP-cyclical equities: we suggest investors considerbuilding positions in the attractively priced SA banking and apparel retailing sectors.

    Stocks Priced For Recession — We identify the 10 MSCI South African stockswhose PE multiples are now trading the most cheap versus where they reached atthe SA economy’s two prior trough points from Q4 1998 and Q3 2009. From this listyou will see all four big SA banks featuring as well as Citi Focus List stock MTN.