Investors have sold in bulk shares in South African media and tech giant Naspers (ISIN: ZAE000015889) over the past year. Since hitting a high of ZAR 3850 (EUR 215.32) on 18 February 2021, Naspers’ shares have been caught in a downward spiral. Currently, Naspers’ stock is trading on the Johannesburg Stock Exchange (JSE) at ZAR 2511 (EUR 140.44) per share – a loss of 35% in nearly eleven months.
This downward trend is stinging both for Naspers shareholders and the South African equity market as a whole. Thanks to a market cap of EUR 54.8 billion, Naspers is not only the heaviest stock on the JSE, but also a figurehead for the South African economy. It is an example of how an old-fashioned print media publisher can successfully re-invest itself as a leading global internet group.
Naspers’ stock has also been hit by the clouding of the macroeconomic climate in South Africa last November, when the Omicron variant of the Covid-19 virus first emerged. Another blow came from the recent Chinese government crackdown on tech companies based in the Communist Republic. Those companies included Tencent (ISIN: KYG875721634), in which Naspers holds a 30.86% stake through a majority shareholding in Amsterdam-listed Prosus (ISIN: NL0013654783). Tencent shares have dropped more than 40% since the end of January 2021.
There are signs that the overselling of Naspers’ shares could end. Consider that analysts are positive on Naspers, setting an average price target that is 71% above its current share price. Indeed, one fund manager told us: “Naspers offers a speculative entry opportunity, and with a 2022 price-earnings ratio (P/E) of 17.7, the share is not expensive.” Should this sentiment prevail, the downward trend for Naspers could end soon.
Following Covid, inflation could be the next scourge for emerging markets, rating agency Standard & Poor’s (S&P) warns. “The rapid recovery of demand and lagging supply are increasing inflationary pressures,” says S&P in its most recent Global Credit Outlook. This follows a separate warning on inflation from Germany’s central bank (Bundesbank). In a report published at the end of December, the Bundesbank noted that rising energy prices on international markets could increase inflationary pressure.
All this might affect African countries. While a group of oil exporting countries such as Nigeria, Gabon, Equatorial Guinea and Angola would benefit from rising oil and gas prices, most African nations would suffer from higher import prices on energy. Investments in renewable energy will help these countries to limit their dependence on fossil fuels imports.
The Moroccan government has relaxed the rules for investments abroad. Until now, Moroccans have been allowed to invest up to MAD 100 million (EUR 9.5 million) in Africa and up to MAD 50 million (EUR 4.8 million) outside the continent. But effective 1 January 2022, the Instruction Générale des Opérations de Change, which is responsible for exchange controls in Morocco, has raised the maximum limit. From now on, Moroccans may invest up to MAD 200 million (EUR 19.1 million) abroad. The government says that the aim of the move is to promote more foreign investment by Moroccan companies. But we believe that the capital markets will also benefit, even if the move initially weighs on the balance of payments in the respective countries because higher foreign investments will initially result in higher foreign exchange outflows. In the longer term, however, this step will strengthen the balance of payments through higher returns from investments abroad.
We believe there are five reasons to be bullish about Moroccan stocks in 2022. They are:
Moreover, given that Morocco should see solid economic growth this year, cyclical sectors such as cement, building materials and durable consumer goods stand to benefit in particular. Therefore, we believe that investors should keep an eye on stocks like Ciments du Maroc (ISIN: MA0000010506) or Lafarge Holcim Maroc (ISIN: MA0000012320). We also think that the supermarket operator Label Vie (ISIN: MA0000011801) will benefit from Morocco’s economic upswing, as consumers would have more cash to buy quality groceries.