BROKERS’ NOTES: Buy SA government bonds, sell Nike

Nick Kunze, senior portfolio manager: Sanlam Private Wealth

Buy: SA government bonds

The new national unity government creates a geopolitical opportunity that investors should not bet against in the short term. A broad-based rally relative to other emerging markets is likely, given our significant discount. A major, positive political change suggests that the rand will rebound vs the dollar in the near term. After years of outflows, foreign equity and bond investments will likely turn into inflows, which will in turn boost the currency. Domestic bond yields have been rising for years as investors fled the asset class due to persistent fiscal deficits, a brewing public debt crisis and a vulnerable currency, which is inversely correlated with the bond yield. It is also worth noting that South African sovereign bond spreads have narrowed; this might be justified for the time being as a result of the positive turn in the political economy. But a period of investor enthusiasm and a relatively stable currency could see a rally in domestic bonds over the next several months. Buy shorter duration bonds: two- and five-year maturity.

Sell: Nike

Nike seems to have gone off track. Once the go-to sneaker in the $150bn-a-year global trainers market, the US sportswear giant is in the midst of a sales slowdown — the worst since 1999, apart from the pandemic and the 2008/2009 global financial crisis. The losses wiped out $28.41bn from the company’s market valuation. A forward p:e of 25 is also well below its five-year average of 33.  To curb a worsening sales decline, Nike is tweaking its product line-up to roll out new $100-and-under trainers to appeal to price-conscious consumers. At face value, the battered stock offers plenty of potential as it remains one of the world’s most recognisable consumer brands. But confronting the new upstart rivals will require a faster pace of change. Avoid for now.