After the boom in commodities, it came as no surprise to see five mining companies in the top 20 this year. The biggest company in terms of turnover, BHP Billiton, is on the list again after dropping out last year, following years where it came 15th, 16th and 7th. This is a remarkable performance for such a big company, because it means that investors are seeing impressive growth each year off a high base. Billiton’s market cap is R428bn, second only to Anglo American’s.

Another company in this category is MTN, now with the biggest market cap (R182bn) on the JSE among nonresources companies. Under CE Phuthuma Nhleko, MTN’s appetite for risk induced it to pay US$5,5bn over a year ago for Lebanon-based Investcom, which also has broader exposure to the Middle East. At the time that represented a 27% premium to the company’s share price, and some observers thought the risk was excessive.

So far they have been proved wrong, and there is no doubt that many of the markets it is eyeing are very far from saturation. Given these two companies’ ability to keep growing, and their proven ability in geographic diversification, it’s arguable that their price:earnings (p:e) ratios at the beginning of June (Billiton 12, MTN 16) were looking rather attractive.

The sector with the next biggest representation after mining in the top 20 is real estate, with three companies (Atlas, Resilient and Hyprop), followed by three other sectors with two each: steel (Highveld, Mittal), shipping (Grindrod, Trencor) and retail (Foschini, Edcon).

Property and retail have been very hot sectors in the SA economy, taking advantage of low interest rates, the growing black middle class, and galloping credit extension; while the others have ridden on construction spending and an upsurge in economic activity.

In theory, if you like to be guided by p:e ratios, there are three companies in the top 20 that would still make excellent buys: Brimstone (2), Sovereign Foods (7) and Highveld Steel (9). But the average p:e ratio of the top 20 is 14, and most of the companies are between 11 and 18. The JSE average is 17.

A year ago the three most undervalued companies in the top 20 were MTN (11), Edcon (11) and Foschini (13). While MTN is much higher this time at 16, the other two both increased to just 14 — suggesting that the market continued to underestimate the strength of the retail boom.

Which of this year’s top 20 are most likely to deliver the best return over the next few years? (Edcon, of course, is no longer on the board following the private equity buyout.)

The answer depends partly on the companies themselves, and they have all proved they are capable of sustained growth in both revenue and profit. But the economic environment will also play a role and here last year’s monetary tightening looks set to continue over the next few months, dampening SA consumer demand.

Last year we argued that SA needs the export industries (manufacturing and mining) to recover to ease the potential balance of payments constraint, and to create jobs. There have been strong signs that manufacturing has indeed been recovering from after years of struggling from the strong rand.

But more needs to be done. Some sectors in the economy — property and retail are the best examples — are largely unfettered by regulatory interference and have therefore been highly competitive.

Where government is getting involved, as with the National Credit Act, which forces companies to be more responsible when offering credit to consumers, the interventions can be justified and apply equally to all players. Agriculture is similarly unprotected, but this is a sector where some protection may be necessary for long-term stability.

Yet there are other sectors where protection undermines competitiveness, such as telecoms, where high prices are often cited as a deterrent for investors.

Certainly the miners — always entrepreneurial, and leaner and wiser after recovering from a stronger rand — have come to the party, led by platinum and aided by a higher gold price and base metal prices generally.

What is most encouraging is the growth in infrastructure spending and fixed investment. This is being led by government and is happening on a scale that makes it virtually immune from environmental factors.

Foreign investors have liked what they have seen, in terms of the commodity boom and a thriving domestic economy. We are less likely to suffer when the fashion moves against emerging markets for whatever reason.

Business people and investors generally are more savvy than they used to be. Companies have stopped whingeing about a strong or weak rand — and even though all agree that they would prefer the rate to be stable, they now understand that it is not something over which government can wave a magic wand.

So many conditions have combined over the past few years to boost company earnings and economic growth. Let’s now put the most pessimistic scenario in place regarding ambient conditions for doing business.

Inflation pressures continue, with the unions continuing to pressure government in a period of leadership instability for the ANC. Interest rates combine with the tougher conditions for credit extension to end the consumer boom. Though infrastructure spending continues, the skills shortage puts a cap on what can be done.

The international oil price remains high and food prices are pushed up further by unfavourable weather conditions and many years of under-investment in the agricultural sector. While property prices continue to rise, the best growth has already happened. Initiatives to bring down the worst rate of violent crime in the world have little effect, knocking confidence further.

In such conditions, which companies will prosper? This is where the big diversified miners, and global operators like SABMiller and Grindrod, are best placed to ride out local difficulties. A continental player like MTN would also be hard to bet against, and it’s hard to see any platinum company battling — though valuations are already high. Financial heavyweights like Old Mutual (also with shrewd foreign exposure through Skandia) and Sanlam will weather the storm, not least because they have adapted their business models to move beyond their traditional insurance base.

Among the smaller companies, it’s hard to see how you can go wrong with niche suppliers to the construction and electrical industries, where spending is virtually guaranteed and prices will rise due to supply difficulties.

Where would that leave this year’s top 20? Some of the stocks that rise above the pack again, by those criteria, would be BHP Billiton, Aquarius, Mittal, Grindrod and Iliad.