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SIMON BROWN: I’m chatting with Mia Kriegler, director at Kruger International. Mia, I appreciate the time today. This was a year. If I look at the local equity market, even in the US, it was a year where there were some big winners, it was a year with some big losers. It really was a stock-picking year on the win side. What were some of the stocks that really stood out for you?
MIA KRIEGLER: Morning, Simon. Yes. Well, the clear winners here have been the sort of the tech-heavy stocks with strong balance sheets. Those have been the ones that we’ve been seeing driving the markets higher, especially in the US. You know, the Faang stocks – Facebook [Meta], Amazon, Apple, Microsoft, and Google – the broader definition of the Faang stocks, have really driven the markets to where we see them today.
But just over the last week or so we’ve seen that breadth in the market really change, where those stocks have underperformed the broader market and the broader market has actually sort of caught up, which is a really good sign for broader market movement going into 2024.
SIMON BROWN: That is a great point, because with the Faangs, the Magnificent Seven, we’re doing all the heavy lifting. We are seeing that broadened, not only in the S&P, but even sort of in the midcaps in the US where suddenly they’re gaining some exposure; and there are some great stocks there now actually with really good prices.
MIA KRIEGLER: Yes, absolutely. And I just think, going into 2024 and coming from this year where the last six weeks on the US markets have been phenomenal, they’ve really driven the markets higher.
It’s the longest winning streak that we’ve seen on the S&P 500 since 2019 – which is quite some time. That’s before Covid, if you don’t remember [chuckling].
But the fact is the South African market was unfortunately hit by various other negative effects. We’ve seen the market here locally not performing as well as globally. And it’s been sort of a Catch-22 situation where we’ve seen foreign investors selling South African equities.
We’ve been seeing South African equities being dropped from broader indices on the global side, and that’s creating additional pressure on the selling of those stocks.
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It’s really looking very difficult to see how things are going to turn around very soon on the South African side. There are various opinions out there due to the fact that the local equities do look attractively priced, but it could be for a reason.
Having said that, we know that the dependency on Eskom is becoming less and less with the amount of solar installations and all those other renewable projects that we’re seeing people take on themselves, firstly, and then some of the companies taking it on themselves and really lightening the load on Eskom in the first instance.
That could [mean] a very, very small change in terms of energy production in South Africa and dependency, or rather the hindrance from load shedding, and could really just create economic growth from a very low base.
So there are sort of green shoots that could materialise over the next two years in the South African economy, not from us being [chuckle] a fabulously expanding economy, but rather just the base effect – the low, low base effect that we are coming off.
So those are sort of green shoots that could benefit our market. But that’s not my first focus. I’d rather have much broader market exposure going into next year, predominantly focused on global equities more than South African.
SIMON BROWN: I take your point – just a few gigawatts of renewables [and] suddenly load shedding disappears. For example, Shoprite saves R100 million a month on diesel costs.
On the loser side, it was commodity stocks left, right and centre, the biggie being Sibanye-Stillwater, a stock we’ve both spoken about a bunch, one that certainly we’ve both held at a time. How are you looking at the stock right now? The commodity cycle is at the bottom. It is a scary place in the cycle, but you and I have seen this before. They’ve got good assets. Your take on Sibanye?
MIA KRIEGLER: Yes. Once again, it’s an unfortunate story – very geography-specific risks that they were exposed to. Obviously if you do mining business in South Africa you are exposed to a very broad range of risks, and we’ve seen that with Sibanye. Sibanye has been negatively affected by all of those. And then of course the main driver, the commodity prices, has also affected them negatively over the year. So a bad year, losing half their market cap value over the last 52 weeks.
But the fact is they have diversified. South Africa, with Marikana and all their big platinum group metal assets in South Africa, remains their largest driver of revenue. Around 65% of their revenue is still from South Africa, but over 30% comes from those assets of theirs in the US that focus on recycling.
And then of course, we know about the acquisitions and the assets they’ve been accumulating in Europe, focusing on battery technology. Over the longer term – even though still very small in their life – that could really benefit this company going forward.
From a valuation perspective they are not expensive. You’re buying these assets at less than book value, so that’s a positive.
And then you’re paying about four-and-a-half times earnings for their share. So it’s not very expensive. But that’s sort of a theme that we’ve seen, as you say, in this very cyclical commodity cycle before. An attractive dividend yield, despite the fact that they find themselves in a very tough economic condition in South Africa, they still pay a dividend yield. In the past year they’ve paid nearly 8% to shareholders, despite what the price has done.
So if you’re an investor, not a speculator, and if you have the stomach to invest in commodities, you should ride the cycles or you should be sort of trying to time them perfectly. That’s very difficult, as both of us know – timing the market.
But the dividend yield has been attractive, as well as the potential of the company going forward. They’re still one of the largest producers of platinum group metals in South Africa. It is not a commodity or commodities that the world has unlimited supply of. So these are positives for the company over the longer term, but definitely [with] a lot of pain felt in the short term.
SIMON BROWN: And trying to time it – I’ve given up on that.
Renewables you mentioned a moment ago. Sibanye’s in that space. We’ve chatted about renewable energy as a global investment theme. We haven’t chatted about it in a while, but it is a booming space and it’s a space that certainly you’ve been looking at for many years now.
MIA KRIEGLER: Yes. Simon, it’s a space that’s also benefitted our investors and our funds enormously. We’ve been invested in among other [things], the Tsitsikamma Community Wind Farm. We’ve some fibre infrastructure projects. And then we also have an investment in Gaia Renewables, which is focused on supplying good businesses in South Africa with renewable energy without them having to do the capital layout for that.
So these projects have been very beneficial to our investors. These projects are normally very long-term earnings contracts, and that makes them more stable in terms of volatility for a portfolio.
It gives you the upside of returns quite a bit higher than you normally see in bonds. And so you’re getting growth asset-like returns at very low volatility, which is a great diversify in any portfolio. So we’ve been very happy with those exposures in our funds, due to the fact that it has been such an interesting market the last couple of years where we’ve seen interest rates at a low just about 18 months ago.
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So many of these developers who normally sold on their holdings of these renewable projects to focus on new projects were in a position to refinance very cheaply and keep their positions in those assets. That actually made the market quite tight. So these projects weren’t easy to come by, and it was quite difficult to source these projects.
Of course, being such a global focus and trend – and in South Africa even more so with load shedding – it is quite hard to come by these good projects at a decent price these days. But thankfully we have a decent allocation to these renewable projects in our funds.
SIMON BROWN: You mentioned bonds there. You and I have never spoken bonds, we’ve always talked equities. But we’ve been seeing some decent yields in bonds. Even the US 10-year was at 5% one time. Our local government bonds are in double digits. Is this a sector you’ve been adding or are you just sticking with equities?
MIA KRIEGLER: Yes, most definitely. Funnily enough, bonds are actually kind of looking more attractive than any other asset class at the moment, if you look at the global space. Also it’s been a great opportunity again for a balanced and a diversified portfolio to expand that exposure again into yielding assets on a global stage, where we haven’t had that for many years on the global side.
So really 2020/2022, 2023 were two years where we see saw a normalisation in how bonds should react by the textbook. That really makes it a little easier again to do asset allocation in a balanced portfolio.
And as I say, these yielding assets and interest-bearing assets do look quite attractive on a global front as well as on the local side. So we do have a good allocation to interest-bearing assets.
SIMON BROWN: Certainly that 60/40 classic portfolio has started to look attractive for the first time in a while.
Mia Kriegler, director at Kruger International, I always appreciate the insights.
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