Banking stocks surprise money managers

The logos of three of South Africa's four biggest banks - Absa, Standard Bank and First National Bank - adorn buildings in Cape Town. Picture: Mike Hutchings

The logos of three of South Africa's four biggest banks - Absa, Standard Bank and First National Bank - adorn buildings in Cape Town. Picture: Mike Hutchings

Published Dec 7, 2016

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Johannesburg

- Over-defensive South African money managers who have missed their performance

benchmarks this year would be better positioned had they read signals that

banking stocks were showing greater resilience than expected, according to

Richard Schellbach, equity strategist at Citigroup.

This time

last year, the outlook for South Africa was starkly different, with the threat

of economic recession looming, Schellbach said in an interview in Johannesburg.

“But at the end of the first quarter, commodity prices were rallying, the

currency was strengthening and inflation had come down. People started

realizing that there wasn’t going to be a rate-hiking cycle; we’re going to

avoid a recession.”

“This was

not the point in the cycle to be short banks,” he said. “The average equity

manager has struggled with performance this year; they’ve underperformed their

benchmark and that’s likely because they’ve been positioned too defensively.”

Read also:  SA banks 'able to deal with downgrade'

Johannesburg’s

banking index has rallied 23 percent year to date, in contrast with a 16

percent slump in the benchmark retailers gauge. South African lenders have

remained well-capitalised and while non-performing loans are rising, they have

tightened credit and lowered their risk appetite, Schellbach said. And they

could have further to run.

“As we look

into 2017, the top-down conditions for emerging-market banks’ outperformance to

continue remain in place.”

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