Old Mutual’s MacroSolutions Hedges South Africa Risk on Slowdown

Old Mutual Plc’s investment unit is hedging risks to the South African economy from a Chinese slowdown and faster growth in the U.S. by staying away from consumer stocks and looking for bargains.

Old Mutual Investment Group of South Africa’s MacroSolutions sold its gold shares last year and decreased its holdings in so-called defensive stocks and consumer-related companies, Peter Brooke, the unit’s head, told reporters in Johannesburg today.

“It’s going to be a bloody year for consumers,” he said. “We are underweight in consumer shares.”

South African shoppers are facing an unemployment rate of almost 25 percent and rising fuel and electricity costs. Africa’s biggest economy probably grew 1.9 percent last year, held back by labor disputes and weak demand for exports, the World Bank said Jan. 15. Expansion may reach 2.8 percent in 2014, according to the median estimate of 24 economists surveyed by Bloomberg from Jan. 17 to Jan. 22. The FTSE/JSE Africa General Retailers Index has dropped 6.8 percent this year.

Barclays Group Africa Ltd. (BGA) is “cheap” on a two-year view, Brooke said. The stock fell 22 percent over the past 12 months and trades at nine times future earnings.

The “big rotation” where investors sell bonds and buy stocks would probably continue on a global scale, Brooke said. South African long-dated debt are starting to show opportunity for investment, he said.

Local bonds with maturities longer than 10 years lost 2.8 percent this year in rand terms, the most among debt tracked by the European Federation of Financial Analysts Societies and Bloomberg. Similar-maturity Greek notes dropped 1.5 percent in the period. Foreign investors sold 15.3 billion rand ($1.3 billion) of South African bonds this year, compared with inflows of 2.5 billion rand.

“We do expect money to flow from bonds to equity on a global scale,” Brooke said.

To contact the reporter on this story: Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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