Money flooding back into South Africa

Investors are bullish on South African equities, even if there are still question marks over the Government of National Unity.

South Africa is entering a new political era, with the ANC losing its majority in parliament for the first time since 1994 and calling for a Government of National Unity (GNU)

Ten parties, including the DA, IFP, PA, FF Plus, Good, PAC, UDM, Rise Mzansi, and Al Jama-Ah, have signed up for the GNU.

These parties account for over 70% of the National Assembly’s 400 seats.

However, President Cyril Ramaphosa has not announced his cabinet amid reported conflict over positions.

Bank of America’s latest fund manager survey shows that 59% of managers are bullish on equities despite the ongoing uncertainty surrounding the GNU talks.

71% of managers are optimistic about equities for the next three to five years.

Moreover, 82% are likely to bring back offshore funds if domestic returns look superior.

Regarding sector preference, fund managers prefer banks, software and metals& mining.

There has also been a shift towards food retail over food producers.

South African assets have performed strongly since the GNU’s initial formation (ANC, DA and IFP) and parliament’s election of Ramaphosa as President.

The rand strengthened to below the R18.00/$ mark for the first time since August 2023, and bond yields declined (a positive) amid robust demand for local bonds.

Stocks have also surged on the JSE, with SA Inc. stocks – those whose earnings are predominantly linked to the South African economy – performing well.

Economic performance

Notably, a net 47% of fund managers in the BofA survey expect the economy to strengthen slightly.

This is a drop from the net 65% and 53% seen in April and May.

That said, there is a more positive outlook on inflation, with a net 76% expecting inflation to be lower next year.

This is an improvement from the net 65% and 63% in April and May, respectively.

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