With a rise in delistings from JSE, investors should look at SA infrastructure

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Sectors like infrastructure, agriculture and manufacturing are significantly underrepresented in SA's GDP and investors' portfolios. Getty Images.
Sectors like infrastructure, agriculture and manufacturing are significantly underrepresented in SA's GDP and investors' portfolios. Getty Images.
  • Alexander Forbes hosted a webinar about "rebuilding for the future" on Tuesday.
  • In the webinar, the group's chief economist, Isaah Mhlanga, said as long as sectors like agriculture and manufacturing are under-represented in the GDP and investors' portfolios, SA will continue to underperform next to its emerging market peers.
  • Mhlanga said investors can get the good returns that they are chasing offshore if they support these sectors which "underpin" economic growth and development.

South Africans will need to invest more in neglected sectors to help the country recover from Covid-19 fallout. Alexander Forbes' chief economist, Isaah Mhlanga, told investors during a webinar about "rebuilding for the future" that the concentration of money on the stock market left industries that are instrumental to economic development without the required investor support in South Africa.

Mhlanga said local investors are increasingly looking to invest as much as they can offshore because of better growth expectations there. However, if they choose to back things like infrastructure and energy projects instead, they could get the returns they are chasing elsewhere while helping South Africa's economy grow.

"There are benefits to looking outside of the listed space and investing in things like infrastructure, for both financial returns and for economic development," said Mhlanga.

He said this was the best "alternative to prescribed assets" which could be devastating to investors and have negative implications for the economy at large.

Mhlanga said while he does not believe that prescribed assets will be implemented, there are many reasons why investors should still put their money in things like infrastructure projects because the stock market investment universe is shrinking as more companies are choosing to delist.

Is bias towards equities to blame for SA's lag in economic growth?

Mhlanga showed investors how South Africa's economic growth "decoupled" from the rest of the world over the past 10 years, meaning that the country did not benefit as much from expanding global economic growth after the 2008/09 global financial crisis.

The country's GDP per capita which gauges average output and income earned per person also began to lag much more after 2007 compared to the rest of the world. Even a country like the Dominican Republic which had lower GDP per capita than South Africa in 2007, has managed to record 82% more growth than SA.

Mhlanga said one of the differences between South Africa and emerging markets that have had much faster economic growth was that sectors like agriculture, manufacturing, energy and construction were "significantly under-represented" in the local GDP compared our peers.

Agriculture for instance contributed 2.7% to South Africa's GDP compared to 6.2% in other emerging markets. Manufacturing contributed 13.6% relative to 21.7% in this peer group.

"These are the sectors that underpin much of economic growth in other countries…It's not a coincident that South Africa with an underrepresentation in agriculture, manufacturing, energy and construction grew at a much slower pace compared to those countries," he said.

When one looks at what kind of stocks asset managers and investors on the JSE put their money towards, agriculture made up only 1.6% of the JSE shareholder weighted market capitalization. Energy made up 0.5% and construction accounted for just 2.3%. Sectors like telecommunications and transport, finance, real estate and mining have proven to be most preferred by local stock buyers.

"What this means is; a lot of investors are leaving value outside of the listed space which talks to the concentration on the JSE.

"So, can there be a convergence in terms of investing both for financial returns and for economic development? The data says so because the sectors underrepresented are also the sectors that can actually lift economic growth going forward " said Mhlanga.

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