South Africans seems to be in mourning after the cabinet reshuffle on 28th of March that saw our Minister of Finance, Pravin Gordhan and debuty minister being axed by Jacob Zuma. Local retailers Shoprite, PnP and Woolies all retreated after the news, but the biggest losers were banks. Banks took a further knock on the 4th April, after Standard & Poor Global Ratings cut South Africa’s credit rating to sub-investment grade with a negative outlook.
NOTE: For an autopsy of the JSE shares that were immune or worse off for the cabinet reshuffle see this article.
Remember, the rand was the best performing currency for the year so far - but now that’s changing. The rand has already retreated from R12.39/$ to R13.81/$ in the past week, and I believe the loss is underdone with all that is going on.
We have identified a few good companies that have the most diversified offshore exposure, to help protect you from losses due to our weakening currency.
Here is a list of our top rand hedge shares, in no specific order:
British American Tobacco is an earnings-diversified, defensive stock that has been around since the company was founded 115 years ago. The tobacco industry has been consolidating for the past couple of years, and British American Tobacco has recently proposed an offer to buy the 57.8% stake in Reynolds America that it does not yet own - gearing up to be the biggest tobacco company in the world. British American Tobacco earns 100% of its income offshore.
Aspen receives almost 80% of its earnings offshore. The company’s share price has been lagging the past year on the back of a stronger rand and as a result of GSK selling of its stake in the company. Aspen is launching a number of high-margin products this year in the US that will materially benefit the company’s margins.
Sibanye Gold is highly correlated and leveraged with the gold price ($) and is a good stock to have in your portfolio. The share price plummeted when the company made an offer to buy Stillwater Mining, the biggest platinum mine in the US, because investors believe that the company cannot afford the acquisition and it is risky to take up that much debt (a bridge loan of $2.7 billion).
Naspers is heavily correlated to the share price of Tencent Holdings, the Chinese Tech giant, which is trading at all-time highs. However, Naspers is trading around R2,400.00 per share, which is still lower than its 12-month high of R2,553.59. Tencent recently announced that they have become the 5th biggest shareholder of Tesla, the electric car company founded by South African-born billionaire and wunderkind, Elon Musk.
Richemont, the holding company for high-end luxury brands like Piaget, Cartier and Mont Blanc, is a 100% rand-hedge stock. All of the company’s earnings are gained offshore, and it is still recovering from a drop in sales last year. Luxury goods is a highly lucrative business, which is why Richemont pays solid Swiss Franc denominated dividends each year.
Find out which SA companies are gaining most of their earnings offshore here.
For an autopsy of the JSE shares that were immune or worse off for the cabinet reshuffle see this article.
Analyst and Securities Trader
Daniel is a full-time analyst and securities trader, and is responsible for equities research across industries. Although he grew up in a small town in the Klein Karoo, Daniel has always been interested in both locally and internationally traded companies. Daniel has been actively investing and trading on the JSE and other global exchanges since starting his Bcom Investments Degree at the University of Stellenbosch, which he completed in 2014 . During his studies, Daniel worked as an intern at Kruger International in Johannesburg in 2015, gaining valuable experience from Hein and Mia Kruger. He is currently a CFA candidate.