South African fund managers are now optimistic of returns from local equities, with a large number prepared to bring back offshore funds, said Bank of America (BofA) in its June 2024 South Africa Fund Manager Survey.
There had been lingering uncertainty in the run-up to and immediate aftermath of the May 29 election, in which the ANC scored badly, leading to it partnering with the DA and other smaller opposition political parties in a Government of National Unity (GNU).
With President Cyril Ramaphosa now sworn-in and concerns about the ANC partnering with radical political parties such as the EFF and MK Party dissipating, there has been a positive shift in fund manager sentiment.
BofA on Friday said about 71% of surveyed fund managers were optimistic about equities over the next three to five years, while 82% of those surveyed said they were prepared to “bring back offshore funds if domestic returns look superior”, as domestic stocks come into sharp focus.
Over half of the surveyed South African fund managers said they preferred banks, software, metals and mining stocks, with “food retail gains over food” producers.
“A higher net 59% of managers are equity bulls. A net 53% are cash bears. Survey responses support higher equity returns, on average. A net 76% say equities are undervalued; net 71% say bonds are undervalued,” reads the BofA report.
It also showed the South African fund managers moving cash underweight and more overweight on bonds. More managers had bought local equities, mainly industrials and lightened on bonds.
They had also sold offshore bonds in favour of equities and reduced cash. Their offshore investments were well off the regulatory 45% limit at 32%.
Analysts at Cratos Asset Management said on Friday that South African “investors have adopted a cautious stance locally for the moment, shifting attention to the potential Cabinet members” following President Ramaphosa’s inauguration.
“All eyes are now on whether the unity government deal between such ideologically diverse parties can hold,” said Cratos Asset Management.
On average, the surveyed managers said “they would still like to invest 6% of South Africa assets under management abroad”.
Policy shifts in the aftermath of the election were a top concern before formation of the GNU formed, which the markets deemed a positive development as reflected in the rally on the JSE in the past week.
However, fewer surveyed managers at below half expect the economy to get “a little stronger”, while a higher net at 76% expect inflation to be slightly lower.
“A long-term rising debt profile. Meanwhile, a Government of National Unity now rules. The glass has moved from half empty to half full. A bullish turn for South Africa,” said the BofA report.
Fewer managers see policy reform accelerating, with South Africa still deemed to have major problems around poor skills outcomes, wage rigidity, government intervention and policy delivery failures around state owned enterprises and municipalities, with specific focus on logistics, electricity and water.
“Economic optimism less positive. South Africa, we still have a major problem: No landing, firm dollar, low growth, load shedding in some metros, weak logistic infrastructure and a rising debt path into the future. We need a weaker dollar and higher growth in South Africa. Unfortunately, global commodity prices are falling at the moment.”
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