Fund managers inclined towards SA bond and equities bulls, Bank of America says

Johannesburg Stock Exchange in Sandton,Johannesburg. Picture: Itumeleng English/ Independent Newspaper

Johannesburg Stock Exchange in Sandton,Johannesburg. Picture: Itumeleng English/ Independent Newspaper

Published Mar 27, 2024


South African fund managers were more inclined towards equities and bond bulls, Bank of America said yesterday in its Fund Manager Survey for March.

The survey also indicated firm that local stocks were currently undervalued.

On South African bonds, respondents to the Bank of America survey were confident of “bond bulls this month”, which are likely to be “supportive of above-inflation bond returns”.

Yesterday South Africa sold as much as R3.9 billion of its R2037, R2040 and R2048 bonds at an auction.

“Some 67% of managers say bonds are undervalued,” the survey report showed. It added that about 69% of surveyed managers were of the view that South African “equities are undervalued” with 73% seeing “more ‘buy’ opportunities” than ‘sells’.

“Over the past 12 months, total returns have shown equities at 15%, R2035 at 20%, and cash at 9%,” noted Bank of America analysts.

There was a higher net of 47% of fund managers who expressed bearish sentiments towards cash, while a strong net of 60% remained bullish on equities.

This was because as much as 80% of the surveyed fund managers were more inclined towards “overweight domestic stocks, with banks and software emerging as the most preferred sectors” for investment.

Conversely, telecoms and beverages are among the least favoured sectors. Standard Bank told Business Report last week that industrials and the general retailers have largely been sidelined since the onset of Covid-19 by investors, with the South African jobs recovery cycle lagging emerging market peers.

It said attractive areas for South African investors included export-oriented companies that benefit from low and rand denominated costs but fully export their products as well as “well managed industrial companies whose focus is production for local consumptions”.

But for the South Africa fund managers surveyed by Bank of America, a net 7% of them see ”reform slowing” down. This was especially important ahead of the May 29 elections in which President Cyril Ramaphosa will be seeking re-election, with Standard Bank analysts saying investors have adopted a wait and see attitude ahead of the important poll.

“South Africa ‘has a major problem’. Poor skills outcomes, wage rigidity, government intervention and policy and delivery failures (on) state owned enterprises and municipalities - logistics, electricity and water,” noted Bank of America in its South Africa Fund Manager Survey.

Other risks identified for South Africa’s investment and policy framework include “potential policy shifts to the left and weak earnings per share (EPS) although surveyed fund managers showed optimism regarding higher equity returns.

Despite a less rosy policy outlook, “forecasts suggest a slightly stronger economy and lower inflation over the next 12 months,” with managers also anticipating a repo rate cut in the third quarter of the current year.

About 40% of surveyed fund managers want to invest cash as there are no managers who currently want to raise cash. Fewer managers, about 13%, want to invest offshore.

Bank of America analysts have previously said that investors were seeing “an attractive market” in South Africa, but were “looking for a spark” for the economy and local markets. This spark was likely to come in the form of the post-election period as well as an expected weaker US dollar as well as higher commodity prices which would prop up the rand and result in lower inflation.