South Africa: Land of Sad Decay or Stock Market Bargains?

I haven't own any South African-based stocks since DeBeers a few years ago. It got taken over and I made a good return on my investment.

But the country is frequently a favorite of Templeton's Mark Mobius, who earlier this month was quoted as saying he likes the consumer sector there. Several years ago Mobius was raving about the country, saying you could buy "first world companies at third world prices."

Will this continue being the case? My hunch is yes. Yet it's just that -- a hunch.

I'm far from being an expert on South Africa. And you have to worry when reading Rian Malan's feature piece in the latest Spectator. Malan is a native of the country who wrote the highly-acclaimed book, My Traitor's Heart, some years ago.

His Spectator article is "South Africa: Not Civil War But Sad Decay":

Now, almost overnight, we have come to the dismaying realisation that much around us is rotten. Nearly half our provinces and municipalities are said to be on the verge of collapse. A murderous succession dispute has broken out in the ruling African National Congress. Our Auditor–General reportedly has sleepless nights on account of the billions that cannot be properly accounted for. Whites have been moaning about such things for years, but you know you’re in serious trouble when President Thabo Mbeki admits the ‘naked truth’ that his government has been infiltrated by chancers seeking to ‘plunder the people’s resources’.

Let's hope the country doesn't become another Zimbabwe. But that's top-down stuff, at least from an investor's point of view.

For investors, the question is will South Africa still offer up investment opportunities over time? Like I said, my hunch is that it will. Yet what Mark Mobius does there in the future may offer a conclusive answer.

Comments

[BP]

I thought the same thing, but after reading Jim Rogers Adventure Capitalist, I'm not so sure about South Africa's long term prospects. Even though the book was written three years ago, and based on information from about 6 or 7 years ago, it did not paint a very pretty picture.

[John]

BP: You're right. As I recall, Rogers' first book, "Investment Biker," was bullish on South Africa. That was based on his observations in 1990 or the early 90s. His second, "Adventure Capitalist," was much more negative on the country.

That said, I doubt the country will ever go flat-out communist, as some of the nuttier elements of the ANC would still like. It's probably a matter of how much corruption is tolerated in their form of capitalism. I should also add that the old apartheid system wasn't exactly a model of free enterprize.

[David Neubert]

Looking around emerging markets it seems that so many are priced rich versus historical standards. And many of them have p/e or price/cash flow multiples that rival developed markets.

[John]

David: You may well be right, I don't follow the emerging markets as a group. I do read Mobius' comments when I come across news reports on him, because he applies the value approach to an area populated by momentum players.