The asset manager believes SA Inc stocks face many risks that might not be priced into their share prices.
Investment manager Allan Gray believes the price of many locally focused, so-called SA Inc stocks have exceeded their fundamentals after staging a post-Government of National Unity (GNU) rally last year.
‘A lot of SA Inc stocks seem quite expensive,’ Allan Gray portfolio manager Tim Acker (pictured above) said during a presentation at the Investment Forum 2025 in Sun City last week. He believes SA Inc stocks are overvalued, making the company cautious.
‘Over the last nine months, since the election, we’ve been selling a lot of our SA Inc stocks, which have done well, and we’ve been rotating that capital into rand hedges,’ he said.
Acker compared food company Tiger Brands, an SA Inc stock, with global multinational beverage and brewing company AB InBev, a rand-hedge stock.
‘[It has] extremely strong brands,’ he said.
However, Tiger Brands’ share price trades on a higher multiple than AB InBev, which Acker thinks is ‘quite strange’.
‘This illustrates my point: many of those SA Inc stocks may have gotten ahead of the fundamentals,’ he said.
Risk factors
Acker said Allan Gray sees SA Inc stocks as expensive and facing key risks.
‘There are still many risks in the SA economy and market. The question is, for the price you pay, are those risks being priced in?’
Another concern for Acker is the deindustrialisation of South Africa, represented by the decline of Eskom and Transnet. He said there was positive sentiment towards Transnet, including talk of private-public partnerships in the local rail sector.
‘But you haven’t seen the volumes turn yet,’ he said.
State-owned logistics company Transnet’s weak performance mirrors what Allan Gray hears from many local companies.
‘A lot of results from the retailers and consumer-facing companies over the last few weeks [show this]. You had this positive story last year, but it hasn’t translated into positive activity on the ground. That’s something we’re quite concerned about.’
Acker said last year’s SA Inc rally was driven by the formation of the GNU and the belief that South Africa was heading toward a more favourable political story.
‘However, we’ve seen some cracks in the GNU recently. The Budget is an excellent example. It’s a lot harder to pass the Budget when you have a coalition.’
Another risk Acker identified is South Africa’s foreign relations.
‘[The] African Growth and Opportunity Act [Agoa] is extremely important to our economy, and we are probably one tweet away from getting kicked out of Agoa. We are busy suing Israel at the International Criminal Court. Trump is not happy about that. What’s that going to mean?’
In addition, the African National Congress is cosying up to China and announced last year it had established closer relations with Iran.
‘Are we going to sell more weapons to Russia? I’m not saying these things will happen, but they are risks.’
Macro events
Acker said Allan Gray builds portfolios that do well in most scenarios.
‘When it comes to macro events, like elections, we try to position ourselves in the right way, obviously trying to participate in the upside. But we want to build a portfolio that would do reasonably well in most scenarios.’
Acker used the example of Allan Gray’s positioning ahead of the South African national elections last May. He said it had taken a ‘middle of the road’ position before the elections, which involved protecting against any downside and a not-too-safe portfolio.
‘We had half-half SA Inc and rand hedges. We thought there were cheap shares in both buckets and the election would be quite close.’
Acker said Allan Gray takes a capital protection lens regarding significant macro events like elections and does not make ‘massive binary bets’ or ‘swinging for the fences’ when making major macro calls.
‘There’s always a risk that might be wrong.’
Before a significant event, Allan Gray prepares, not least by retaining flexibility in its portfolios.
‘Having flexibility is valuable from the risk management lens.’
He said Allan Gray built portfolios to do well in up-and-down scenarios.
‘You want to do two things at once: beat the market and avoid drawdowns. A slow and steady approach wins the race.’