Investors like what they see from South Africa

 ·23 May 2024

Investors believe South African equities are set for a strong performance after the upcoming elections.

According to the latest Bank of America (BofA) Fund Manager Survey, managers are more bullish about equity, with a net 53% expecting equity growth over the next 12 months.

“Domestic stocks are expected to lead the rally post-elections, with economic sensitives and heavy industrials showing increased positioning,” said the group.

“Risks include political shifts to the left, with 74% of managers anticipating a rally in domestic stocks post-elections on May 29th.”

Net BullsMarchAprilMay
South African equities60%29%53%
South African bonds13%35%5%
Commodity prices-20%-6%-5%

A separate Bloomberg survey also showed that investors are widely convinced that stocks, bonds, and the rand will keep soaring after the elections.

Of the 26 emerging-market investors, most were overweight or neutral to South Africa, with many preferring to invest in the country over Egypt and Nigeria.

It highlights the shift in investor sentiment over South Africa with the country, with many previously hesitant to invest due to load shedding and mismanagement.

Although the ANC is expected to lose its majority in parliament, it is believed that it will still get enough votes to avoid enlisting less market-friendly rivals as coalition partners.

“The election uncertainty has been weighing on South Africa, so an outcome that rules out a populist government would be received well by the market,” said Kaan Nazli, a portfolio manager at Neuberger Berman Asset Management.

Nazli said that a market-friendly outcome would also allow the government to focus on structural reforms to boost economic growth.

Still some concerns

Despite the overall improvement in sentiment, the BofA survey did highlight some concerns.

A smaller net of 53% believes that the economy will get a ‘little stronger’. With the economy only growing by 0.6% in 2023, a little stronger is nothing to write home about and is unlikely to keep pace with population growth.

A similar net of 63% expects inflation to be only ‘slightly lower.’ The latest April inflation figure came out at 5.2% – still above the South African Reserve Bank’s midpoint target of 4.5%.

Net stronger/weaker predictionsMarch AprilMay
Economy 53%65%53%
Inflation -67%-65%-63%

The overall consensus on the first rate cut has been pushed out from Q3 to Q4 2024, meaning that borrowing costs will remain restrictive for longer.

The rand is also expected to hit R18.01 in the next 12 months – dropping from the 17.88 seen in March.

Read: New R230 per month surcharge hitting prepaid electricity users in Joburg – with massive hikes to come

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