Areport from Bank of America (BofA) highlighted a shift in South Africa investor sentiment, with fewer fund managers bullish on equities and a decline in those who believe stocks are undervalued. The All-Share index is projected at 93,000, down from a previous estimate of 99,000. The report also forecasted total returns for equities at 16%, for R2035 government bonds at 12%, and for cash at 8% over the next 12 months.
According to BofA, a net 56% of managers are now equity bulls, a decrease from 72%, while a lower net 33% are cash bears, which supports the expectation of double-digit equity returns. Additionally, only 28% of managers consider equities to be undervalied, a significant drop from 79% before the elections, with 39% holding that view for bonds. However, a net 56% still see more buying opportunities than selling.
The report also indicated a shift in preference among fund managers, with less extreme favoritism for domestic equities and a growing interest in the apparel sector. The 10-year forecast yield has risen by 39 basis points, and the consensus is for two repo rate cuts within the next 12 months. A net 83% of managers expect the economy to strengthen slightly, and a net 39% anticipate a slight increase in inflation.
In terms of currency and bond yield forecasts, BofA expects the USD/ZAR exchange rate to be at 17.77, with repo and R2035 yields at 7.18% and 10.22%, respectively. Managers would sell R2035 government bonds at a yield of 9.53%. There is a unanimous expectation among managers that the South African Reserve Bank (SARB) will make its next move by cutting rates, with 83% predicting a cut in the first quarter and the remainder in the second quarter.
The report also provided insights into current positioning by fund managers, revealing high relative historical positioning in equities, bonds, retailers & food producers, gold, and software, with low positioning in offshore, cash, telecoms, chemicals, and healthcare. There is an increased positioning in resources and a decrease in financials.
Looking ahead, the net percentage of managers overweight in equities has risen to 67%, while those overweight in bonds have decreased to 17%, and those underweight in cash have increased to 22%. For the next 12 months, the preferred sectors are apparel retailers, banks, and software, with the least preferred being telecoms, chemicals, and life insurance.
The gold sector has seen the most significant gains, while banks and life insurance have lost ground. General industrials and transport have gained preference over food retail, with banks and apparel retailers reaching position highs.
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