Sentiment towards South Africa is poor. It is tempting to believe that excessive bad news is priced into South African assets, which should deliver attractive returns if reality turns out to be less negative than feared. Unfortunately, we do not believe this is likely.
The fundamentals of the South African economy are deteriorating under the current government. One way to highlight this is to discuss South Africa in the context of variables which we regard as important to any investment, namely cashflow, financial flexibility and management.
Three investment questions to ask are:
- Does South Africa generate sustainable positive cashflow?
- Does South Africa have the financial flexibility to respond to an uncertain future?
- Does the management of South Africa, i.e. the government, have a track record of value creation?
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Dunley-Owen, M (August 2017)
Allan Gray Management Company