It may be time to drop gold and tech stocks and buy into South Africa's domestically focused stocks, according to JPMorgan Chase & Co.
The broker upgraded its view on South African equities to overweight from underweight this week, saying the global value trade driven by faster economic growth, stronger commodity prices, a weaker dollar and fewer trade tensions with the incoming US administration will benefit domestic stocks such as banks and value cyclicals, at the expense of gold and tech firms.
"We see further headroom" for stocks in JPMorgan's South African basket to outpace an offshore basket, strategist David Aserkoff wrote in a note dated Nov. 23. While the former group has risen 14% in US dollar terms and outperformed the latter by 19% in the last three months, domestics are still down about 18% year-to-date, he said.
According to Aserkoff, locally focused stocks will also get a boost from incrementally positive newsflow as the country's reform process progresses. Financials, general retailers and industrials, which have all fallen in 2020, are expected to continue re-rating in 2021, he said.