Billions to pour into S Africa

A TIDAL wave of foreign money totalling pounds 3.5bn is poised to pour into the Johannesburg Stock Exchange after Thursday's historic South African general election. British institutional investors and merchant bankers are scrambling for a slice of the action.

Tomorrow Prudential Portfolio Managers, one of the world's biggest investors, will announce that it has set up its first office in South Africa to build on existing shareholdings worth pounds 230m.

Last week Barings, one of the City's oldest merchant banks, said that it also intended to establish itself in South Africa.

And immediately after the election, Michael Marks, chief executive of the brokers Smith New Court, is visiting the country and will meet the three main political leaders: ANC leader Nelson Mandela, FW de Klerk, the head of the National Party, and their Inkatha counterpart, Chief Mangosuthu Buthelezi.

'I am also going to see the big mining houses and insurance companies,' said Mr Marks, 'to find out what they expect from a foreign securities house. The ANC have dropped their radical stance on nationalisation, but they want more industry owned by blacks, and that is quite right.'

Several of the City's top merchant banks and securities houses see that sort of restructuring as an opportunity for them to earn advisory fees.

On Friday, Mr Mandela was applauded by brokers when he visited the Johannesburg stock exchange - a place the ANC once dismissed as 'a casino'.

Meanwhile, the election is seen by many international fund managers as a watershed, signalling a degree of political stability that will make it essential to deploy part of their portfolios there.

Representatives of Morgan Stanley are in South Africa at the moment, deciding whether to put the country's stock market into the influential Emerging Markets Index, which many fund managers use as a guide for their own investment strategies.

Michael Spriggs, head of South African research at London's SG Warburg Securities, said: 'If South Africa is classified as an emerging market, pounds 3bn would give it a neutral weighting in institutional portfolios.' A neutral weighting would mean Johannesburg was placed on a par with investments in emerging markets such as Singapore or Hong Kong.

But these estimates may be conservative. The Robert Fleming merchant bank has had a Johannesburg office for many years. From there, Adam Fleming argued: 'South Africa would add another pounds 70bn to the value of emerging markets, which are currently worth pounds 280bn. About a tenth of that is held by investors in developed countries, so if they wanted to bring South Africa up to the same level they would have to invest pounds 7bn.'

Ironically, little of the foreign money expected to flood into the stock market is likely to find its way into South African companies - except indirectly, through the profits it will give to local investors who sell their shares to meet the demand.

Michael Coulson, South African analyst for the French- owned Credit Lyonnais Laing, said: 'Many of their companies are already lean, mean and well cashed-up, after the last three or four years of no growth. They do not need to raise additional money.'

Sir Chips Keswick, chairman of Hambros Bank and a director of De Beers, the South African diamond giant, said that exchange controls were holding the country back. 'If they felt they could dismantle that, it would open the whole country up. There is plenty of scope for increasing debt, and they have all the commodities, minerals, power and legal infrastructure to become a highly developed economy very quickly.'

But Hugh Freedberg, the South African-born chief executive of Hill Samuel, part of TSB Group, warned: 'The new government will have to meet very high expectations among the blacks. They will expect to see an uplift in their standard of living in the next year. It's going to be very difficult.'

(Photograph omitted)

Robert Chote, page 6