The Rand has come under immense pressure over the last few months as foreign investors, fearful of worsening labour and social unrest, push the currency to 3 year lows against the US Dollar. In a portfolio context currency depreciation has significant effects on real returns and is most evident when considering that the 16% ZAR return on the JSE Top40 Index this year equates to only 6% in USD terms. Depreciation should therefore be a serious consideration to local investors.

Numerous domestic listed companies, however, are dominated by offshore operations or commodity price reliant earnings and therefore see their stock price rise from a weakening domestic currency. These shares provide the local investor with good Rand Hedging opportunity without the requirement of taking cash offshore or conversion into foreign currency.

We feel that a managed structured portfolio of the below stocks should provide an average 75% protection or hedge to ZAR weakness whilst maintaining exposure to potential capital growth.

Top 10 Potential Holdings

 

Rand Hedge Qualities

Historical Earnings exposure to ZAR

Richemont

Multinational business with transactions in numerous currencies. EUR Reporting Currency.

  <2%

British American Tobacco

Multinational business with transactions in numerous currencies. GBP Reporting Currency.

  <3%

Intu Properties Plc.

100% offshore property holdings primarily valued in GBP.

  <1%

BHP Billiton

Share price correlated with International metal prices. USD price of Metals has significant effect on earnings.

Multinational operations.

  <10% (Int Metal Prices)

Sasol

Share price strongly correlated with USD Oil Price. Company has expressed that a US 10c move in yearly average exchange rate influences profit by approximately R800mil.

  <60% (Int Oil Price)

SAB Miller

Large diversified global customer base. USD reporting currency.

  <25%

MTN

Multinational business with transactions in numerous currencies recorded in USD before ZAR conversion.

  <25%

Trencor

Earnings derived from global operations of US firm that transacts primarily in USD

  <10%

Aspen

Diversified globally with transactions in numerous currencies. Non ZAR denominated markets gaining increasing significance. SA operations defensive.

  <40%

Naspers

Tencent’s significant influence on earnings (>50%) make its HKD, CNY and USD denominated operations far more influential on NPN stock price than domestic ZAR operations. 66% correlation.

  <50%

*Please note that the aforementioned hedging structure also implies that ZAR appreciation might adversely affect earnings and stock price, i.e. eliminating both upside and downside currency risk.

Gerobos (Pty) Ltd. An Authorised Financial Services Provider  

Please see the following terms, all of which it is assumed you have read and acknowledged. Consult your financial planner before entering in to any aforementioned products and ensure you have a good understanding of all terms, conditions and return profiles associated. All data, particularly rates and price quotations, contained herein are provided only for informational purposes and are subject to market fluctuations. Gerobos provides no warranty as to the reasonableness, completeness or accuracy thereof. Please note that the above contains no performance guarantees or promises and serves merely as a guide to our portfolio management techniques. Past performance is not an indication of future performance. This report is proprietary property of Gerobos and you may not copy any part thereof unless you have obtained written consent from the authors. Client funds invested with Gerobos are invested with integrity in the same manner as Gerobos’ own funds are invested.