Linda Eedes, Investment Executive, and Wim Murray, Portfolio Manager at Foord Asset Management

As South Africa settles into the final quarter of 2024, the local equity market continues to build on gains spurred by this year’s coalition government formation. With loadshedding absent for over 200 days, interest rates and inflation on a downward trend, and the rand performing among the better emerging market currencies, the outlook has been markedly positive. But can this optimism be sustained?

Linda Eedes, Investment Executive at Foord Asset Management, believes the answer hinges on consistent execution of government policy and improvements in business fundamentals. “South African equities have rallied as political stability has increased confidence, but we’re yet to see a direct impact on the country in terms of the fundamentals, which would feed through to the companies on the ground.”

Is South Africa’s energy crisis truly solved?

While loadshedding’s absence has been welcome relief for many, Eskom’s financial sustainability remains uncertain, which may carry future implications for the economy. Wim Murray, Portfolio Manager at Foord Asset Management, explains: “The supply-side risk around Eskom appears to have largely abated, and energy availability has improved. Yet, Eskom’s application for a 30% price hike is a major red flag – if granted, it could significantly affect consumer spending power, impacting broader economic stability.”

Murray warns that Eskom’s challenges may persist in new forms. “We’re likely to see reduced reliance on Eskom as more consumers turn to alternative energy, which complicates its debt management. Eskom will likely remain a ‘problem child,’ but the issues will shift as conditions evolve over time.”

Balancing growth potential and risk

To navigate this environment successfully, Foord Asset Management is prioritising resilience and value-driven strategies. “We’re focusing on identifying high-quality companies with sound business models and strong management teams, especially those likely to perform well regardless of political dynamics,” says Eedes. “We’re also seeing attractive value in offshore counters, which offer some protection against localised risks. Within South African equities, we spend considerable time analysing business fundamentals and market positioning under various scenarios, ensuring that even in a low-growth setting, the companies we invest in have solid value propositions.”

Murray expands on this, noting, “Over the past decade, despite low GDP growth, some companies have consistently delivered shareholder returns, often by capturing market share in faster-growing segments or by strengthening their competitive advantage. This is where we’re spending our time – on businesses that grow stronger in adverse conditions and where their economic standing can become more attractive over time.

“It all comes back to quality of the business and the management teams – we continue to prefer these businesses over more challenged business models,” Murray concludes.

ENDS