Prescient Seeks Cheap China Stocks as Markets Roiled

  • Company's wind-farm fund backed by government guarantees
  • Prescient focuses on hedging as most asset classes struggle

Prescient Investment Management Pty Ltd. of South Africa is attracted to Chinese and African stocks that are inexpensive relative to earnings amid volatile global markets, Chief Executive Officer Herman Steyn said.

“China is a very cheap market and Africa, at prices of 8 times earnings or less, is very attractive,” Steyn said in an interview in Johannesburg on Wednesday. Chinese banks are larger and cheaper than their Western peers “although there are some issues around transparency and regulatory constraints that make them cheaper.”

Hedging protection is vital across all assets in markets with few winners at the moment, according to the Cape Town-based company with 65.6 billion rand ($4.9 billion) under management. Stock markets remain unsteady following China’s yuan devaluation last month, the rand is near a 13-year low against the dollar and risks on government bonds are increasing.

Hedging Payoff

Prescient’s Absolute Balanced Fund limited its losses to 1 percent amid plunging markets last month by hedging equity holdings with options such as puts that allow the manager to sell the stock in the future at an agreed price, the CEO said. The fund, with about 540 million rand, rose almost 11 percent over the past three years, the company said.

“We buy equities, but we hedge them,” Chief Investment Officer Raphael Nkomo said at an investor briefing on Wednesday. “It’s not as clear a picture as we had in 2008 and 2011, when we didn’t buy equities.” Nkomo joined the company Aug. 26 from Barclays Africa Group Ltd.

Prescient said last month it raised 580 million rand for a fund backing South African solar and wind-power projects and Steyn said he expects it to attract further investments in the fund of about 100 million rand each. The fund has a government-guaranteed return of inflation plus 4 percent. Annual inflation was 5 percent in July.

Prescient has at least 25 local and offshore unit trust funds. It has only one fully-fledged hedge fund, which it took on for a life insurance company that Steyn declined to name.

A U.S. interest rate increase “could have quite a negative spinoff in South Africa,” the CEO said. A rise is unlikely Thursday because U.S. inflation concerns are marginal and economies from Greece to Brazil, China and Russia are struggling, the CEO said.

(Corrects to refer to parent company in first paragraph of story published Thursday.)
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