Sentiment among South African fund managers is cautious but “risk on” for domestic assets over the next 12 months, according to the latest fund manager survey by Bank of America (BofA) Research.
However, fund managers are less bullish about the prospects for South African equities than they were in December. A net 56% of managers were bullish on domestic equities in January, compared to 72% last month and 75% in November.
Furthermore, managers now expect the FTSE/JSE All Share Index to hit 93 000 in 12 months, whereas in December they expected it to reach 99 000 by the end of this year.
BofA’s fund manager survey was conducted between 10 and 16 January and incorporates the views of 18 managers.
Local managers still believe local equities is the sector most likely to out-perform this year, although not as many are of this view in January compared to December. Gold bullion (in rands) is now regarded as the next most likely sector to out-perform, overtaking the S&P 500 (in rands), which was second in December’s survey. Out-performance is also expected from 10-year government bonds and domestic cash.
Regarding bonds, managers expect the price of the rand-denominated 10-year government bond to weaken over the next 12 months, with an average yield of 10.22% compared to their December estimate of 9.83%.
Fewer managers are bullish on the prospects for bonds, with net bullish managers declining from 17% in December to 6% in January.
The proportion of managers who are bearish on cash fell to 33% in January from 66% in December.
A net 28% of managers, down from 39% in December and 56% in November, say South African equities are undervalued, and higher net 56% (44% in December) of managers are seeing more “buy” than “sell” opportunities.
A net 67% of fund managers say they are overweight in South African equities relative to their benchmarks, up from 61% in December. Only 11% plan to increase their weighting in the next three months, unchanged from December.
Managers see the biggest risks to South African equities as weak earnings, a de-rating, and “sticky” inflation and monetary policy. All three risks tied for first place among managers’ concerns. The prospect of a leftward shift in government policy came second.
Most and least favoured sectors
On a 12-month view, resources have gained ground over financials and industrials since the December survey, although the mood towards resources remains bearish.
Bearishness across all the resource sectors in previous surveys pointed to the resource index being at or near bottom, BofA commented.
Industrials is still the most favoured sector, followed by financials.
In the industrial sector, apparel retailers and software are the most preferred, and telecoms is the least favoured sector.
Within financials, banks are the favourite sector. Sentiment towards all financial sectors has waned since December, except for real estate. Life insurers are the most out of favour sector.
Within resources, all sectors gained ground since December, with sentiment most positive towards gold.
