Where investors are putting their money in South Africa

 ·23 Jul 2024

South African fund managers see massive potential in South African equities, with many expecting the economy to strengthen.

According to the latest South Africa Fund Manager Survey, this shows a more bullish outlook on domestic equities amongst fund managers.

The survey shows a substantial jump in investor optimism, with 82% of respondents expecting more buys than sells over the next 12 months.

88% of managers would also overweight domestic stocks over the next 12 months, while 77% of respondents are optimistic about equities over the next three to five years.

Banks, apparel retail and software are the most preferred sectors among fund managers.

The increase comes from a much higher net of 82% (47% in June), expecting the economy to get a little stronger over the next 12 months.

A similar net of 76% also expects inflation to be ‘slightly lower’ over the next 12 months.

Many investors have highlighted the potential for South African equities over the last several weeks.

Stonehage Fleming director JP du Plessis said that the stability and delivery by the Government of National Unity (GNU), the encouraging inflation backdrop and upcoming interest rate cuts could result in a boom in the JSE.

The GNU has already boosted the JSE All Share Index, which returned 4.1% in June alone, while the JSE Financial Index returned 13.2% for the month.

Despite the recent rally, many JSE-listed companies are still trading under their long-term average valuation multiples following muted returns.

Momentum Investments also strongly prefers domestic asset classes over global counterparts for the upcoming year due to more attractive valuations and the potential for rand strength.

That said, Momentum is also attracted to the global diversification of many JSE-listed companies.

Less than half of the South African equity market’s production, revenue, and earnings are generated within the nation’s borders, meaning that local equities are not overly sensitive to local developments or the rand.

Interest rate cuts

Returning to BofA’s fund manager survey, the consensus for an interest rate cut remains at Q4 2024., but there has been a shift.

More investors think the first cut will be in Q3 (31% vs. 13% in June).

Notably, the survey was conducted between July 5th and 11th, prior to the South African Reserve Bank’s (SARB’s) Monetary Policy Committee’s (MPC’s) meeting, which resulted in several economists changing their tune on interest rates.

In line with the market’s expectations, the MPC kept the repo rate at 8.25% when it met last week.

Nevertheless, two of the six members voted for a cut of 25 basis points.

“This represents a departure from last year when the policy rate was kept unchanged with unanimous votes. The monetary policy outlook is getting interesting again,” said BofA’s economists.

With inflation expected to drop below 4.5% in Q4 and the rand strengthening following the formation of the GNU, BofA now expects the SARB to cut rates by 25 basis points in September.

BofA expected further 25-basis-point cuts in November, January, and March, bringing the repo rate to 7.25%.

This was a notable shift from BofA’s previous expectation that the SARB would only start cutting in January 2025.

Standard Bank also expects the interest rate-cutting cycle to start in September, with the MPC set to cut rates by 25 bps.


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