SOUTH AFRICA - The Johannesburg Stock Exchange's small cap sector could run strongly over the next year as low valuations and earnings increases make their mark on share prices, according to Old Mutual Asset Management (OMAM).
Richard Hasson, head of the small company sector, said the prospects for the once beleaguered sector are improving.
Henson says that, given the normal market conditions, share prices could spurt by up to 20% over the next 12 months on the back of a predicted rise in earnings combined with a small re-rating.
Thus far the interest in the sector has been mostly institutional.
Among the positives for the sector are the declining interest rate environment, the cheaper cost of capital, low ratings and corporate activity, all tending to underpin share prices.
Hasson says the profitable small caps have a market cap of R85,9bn ($10.4bn) with earnings of R13,5bn (41.6bn). This is against the overall JSE small company capitalisation of R92,8bn ($11.2bn) with earnings of R10,7 ($1.2bn).
Small caps are trading at a 45% discount to the large cap stocks.
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