BoE Private Clients, a South African manager of money for wealthy individuals, is buying shares in mining companies, including Anglo American Plc, as it bets a rally in commodity prices will continue.
BoE, a unit of Nedbank Group Ltd., the nation’s fourth-biggest lender, is also raising holdings of shares in companies that will maintain revenue even as the economy slows, including retailers and mobile-phone operators, Gregor Krall and Graham Ledbitter, portfolio managers at the Cape Town-based money manager, told journalists.
The FTSE/JSE Africa Mining Index of 19 companies has declined 4.7 percent this year as the global economy sagged, damping demand for industrial metals. The index trades at 8.4 times earnings, compared with a ratio of 12 times earnings for the benchmark FTSE/JSE Africa All Share Index, according to data compiled by Bloomberg.
“Resource stocks are among the cheapest in the market at the moment,” Krall said. “Over the next couple of years you can still see a potential increase in earnings among” these companies as commodity prices rally, he added.
The Standard & Poor’s GSCI index of 24 raw materials has rebounded 15 percent since Oct. 4, when it fell to its lowest level in a year on concern the slowing global economy will crimp demand. The rally is set to continue “over the next three to four years” as growth in China stokes demand for industrial commodities, said Darryl Owen, chief investment officer at BoE.
BoE prefers holding a range of diversified mining companies including Anglo American and competitor BHP Billiton Ltd., Krall said. It doesn’t recommend buying gold mining shares, as it believes the metal’s 25 percent gain this year is overdone.
The money manager also recommends buying so-called defensive stocks, or shares of companies that maintain earnings even as the economy slows, said Ledbitter. These include Shoprite Holdings Ltd., the nation’s biggest grocer; AVI Ltd., a frozen-foods distributor; and MTN Group Ltd., the continent’s largest mobile-phone company, he said.