According to the IMF's Middle East and North Africa Economic Update from April 2024, the MENA region is expected to see moderate growth of 2.7% in 2024, up from 1.9% in 2023. Both oil-importing and oil-exporting countries in the region are projected to grow at similar rates, with the gap between the Gulf Cooperation Council (GCC) economies and developing oil importers (excluding Egypt) expected to be around 1%. The region's GDP per capita is forecasted to increase by only 1.3% in 2024, primarily driven by the GCC nations. However, ongoing conflicts continue to weigh on the region’s economic activity, especially in Palestine. Gaza's economy, for instance, saw an 86% decline in Q4 2023 compared to the same period in 2022. Trade disruptions, notably through the Suez Canal, have also affected regional and global commerce.
Over the last decade, many MENA economies have faced rising debt-to-GDP ratios, particularly among oil-importing countries, which struggle to reduce these ratios due to high oil prices. The inability to lower debt through inflation, exacerbated by exchange rate fluctuations and off-budget factors (stock-flow adjustments), underscores the need for greater debt transparency. In contrast, oil-exporting nations tend to see smaller increases in debt-to-GDP ratios during periods of high GDP growth, and in some cases, a decrease.
Meanwhile, private equity (PE) and venture capital (VC) investments have gained momentum in the Middle East and Africa, reflecting a shift in investment trends. Data from Preqin and the Dubai International Financial Centre (DIFC) reveals that about 65% of regional investors plan to maintain or increase their exposure to private equity in 2024, with 56% expressing similar interest in venture capital.
Despite the challenges posed by geopolitical tensions, venture capital continues to play a crucial role in the region's investment landscape. Investors remain optimistic, with many reporting that their PE and VC investments have met or exceeded expectations. Key sectors attracting interest include fintech, technology, healthcare, and infrastructure.
As the region navigates the complexities of economic growth, debt management, and investment trends, it's clear that there are both challenges and opportunities on the horizon. Investors remain optimistic about the region's potential, however, it's essential for policymakers to prioritize debt transparency, economic diversification, and infrastructure development to unlock the full potential of the MENA region's economies. With that in context, let's take a look at the 10 worst Middle East and Africa stocks to buy according to short sellers.
Our Methodology
For this article, we used a Finviz stock screener to find 20 large companies in the Middle East and Africa, by market cap. From that list, we shortlisted companies that have the highest percentage of shares outstanding that were sold short. The list is sorted in ascending order of their short interest. We also mentioned the hedge fund sentiment around each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A group of miners in orange overalls standing in a gold mine in the Witwatersrand Basin.
DRDGOLD (NYSE:DRD) is a gold mining company based in South Africa. The company specializes in extracting gold from surface tailings in the Witwatersrand Basin, one of the largest gold reserves in South Africa. The company operates through two primary divisions: the Ergo segment, accounting for around 60% of its total mineral reserves and 75% of its mineral resources, and the Far West Gold Recoveries (FWGR) segment. DRDGOLD (NYSE:DRD) holds approximately 5.8 million ounces in mineral reserves and 9.6 million ounces in mineral resources.
In the first half of 2024, DRDGOLD (NYSE:DRD) saw a 6.3% year-over-year drop in gold production, totaling 81,888 ounces. This contributed to a 10% rise in all-in costs, which reached $1,575 per ounce, which is high compared to industry standards. However, strong gold prices helped increase the company's operating margin to 30.2%, with earnings growing by 10.1% to $30.8 million.
DRDGOLD (NYSE:DRD) is facing production difficulties due to delays in starting up two large sites, which were meant to replace older, exhausted ones. These delays were caused by slow approvals from authorities and problems with local communities. Both issues were resolved in January. The company is now optimistic about producing around 90,000 ounces in the second half of FY24, with all-in costs expected to fall below $1,500 per ounce due to economies of scale and reduced energy costs from its solar plant. DRDGOLD (NYSE:DRD) remains on track to meet the lower end of its FY24 production guidance of 165,000 to 175,000 ounces. Looking forward, DRDGOLD (NYSE:DRD) stands to benefit from elevated gold prices, with forecasts from Citi and Goldman Sachs predicting peaks of $3,000/oz and $2,600/oz, respectively, in the coming months.
DRDGOLD (NYSE:DRD) is also expanding its Ergo and FWGR operations, with new feeders commissioned at the Ergo plant, and ongoing projects such as a 60 MW solar facility and enhanced processing capacity at the Driefontein Plant. DRDGOLD (NYSE:DRD) is committed to reinvesting $193.2 million in infrastructure.
DRDGOLD’s (NYSE:DRD) stock is trading at 12.76 times its earnings, a 21.23% discount to the sector median of 16.20. While 1.16% of the company's shares are shorted, 7 hedge funds have maintained a bullish sentiment on the stock as of the second quarter with stakes worth $10.55 million. Renaissance Technologies is the largest shareholder in the company and holds stocks worth $6.90 million as of June 30. Industry analysts maintain a consensus Buy rating for the stock, with an average price target of $13.25, indicating a 28.84% upside potential from its current price.
Overall DRD ranks 7th on our list of the worst Middle East and Africa stocks to buy according to short sellers. While we acknowledge the potential of DRD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DRD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
