Amid growing confidence in South Africa’s economic landscape, the latest Bank of America South Africa Fund Manager Survey for October reveals that a significant portion of fund managers are optimistic about the nation’s economic recovery.
With expectations of a second interest rate cut looming next month, a striking 82% of fund managers now classify themselves as equity bulls, a marked increase from 72% in September.
However, despite this bullish sentiment, many are treading cautiously regarding the addition of domestic stocks to their portfolios.
The survey, which gauges the sentiment of key South African fund managers, highlighted a net 59% of respondents who believed equities were currently undervalued, while 71% envisioned a more favourable environment for buying than selling stocks.
The improved outlook suggested a departure from previous months when sentiment leaned towards caution and bearishness.
Furthermore, 25% of the surveyed managers anticipated positive fiscal consolidation following the government’s upcoming budget, and 53% foresee necessary reforms to the nation’s economic policy.
What’s particularly noteworthy was the sentiment shift on the economy’s strength. Approximately 29% of fund managers now predict that the economy will become “a lot stronger”, a substantial rise from 0% written in the previous month. This newfound optimism is underpinned by bolstered business confidence, attributed to the ongoing efforts of the Government of National Unity (GNU).
Looking at inflation dynamics, 53% of fund managers expected inflation rates to decline slightly, albeit a decrease from the 61% who held a similar view in September.
Despite these modest inflation expectations, fund managers were exhibiting a more stable investment approach, preferring to maintain their current positions rather than aggressively adding to domestic stocks.
However, there was a noticeable increase in appetite for resources and non-commodity ZAR hedges, signalling a pivot towards more diverse asset classes.
Preferred stocks among managers included domestic cyclicals, banks, apparel retail, and general industrials, while sectors like real estate, life insurance, and chemicals remain least preferred.
Notably, South African platinum stocks - along with chemicals - have started to gain traction, outpacing food producers and personal goods despite generally depressed prices in platinum group metals (PGM).
On a broader scale, mining and metals are thriving as fund managers reallocate their portfolios, favouring offshore investments while easing their local exposures.
Yet, the survey does highlight concerns regarding weak corporate earnings and potential policy shifts to the left that may pose long-term risks.
Fund managers anticipate it could take up to six months for concerns to dissipate, although issues surrounding Eskom and Transnet seem to have receded from immediate focus.
The strong sentiment displayed in this month’s survey follows previously reported optimism from September, where fund managers expressed enhanced confidence in lower interest rates and a resilient rand exchange rate as the country gears up for its elections on 29 May 2024.
Despite some uncertainty, there is an overarching belief that domestic stocks will experience a resurgence post-election.
BUSINESS REPORT