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A report from Bank of America (BofA) indicates a growing bullish sentiment among equity managers in Sout Africa, with a higher net 73% (up from 62%) identifying as equity bulls. This optimism supports the anticipation of double-digit equity returns over the next 12 months. FTSE/JSE All-Share index is projected to reach 100,000 points from the current 98,000, with total returns for equities estimated at 17%, for R2035 government bonds at 14%, and cash at 8%.
In terms of currency, the South African Rand (ZAR) is expected to strengthen, with 80% of managers predicting a South African Reserve Bank (SARB) rate cut within the next 12 months, although the timing remains uncertain. Managers foresee the economy strengthening slightly and inflation rising modestly. The USD/ZAR exchange rate is forecasted at 17.44, down from 17.60, with repo and R2035 rates at 7.14% and 10.11%, respectively.
Despite the positive outlook, managers are hesitant to add to their positions, maintaining high relative positioning in equities and bonds, particularly in sectors such as retailers, food producers, and banks. Conversely, there is low positioning in offshore investments, cash, chemicals, healthcare, and telecoms. Notably, no managers are underweight in apparel retail, and there is a record high score for banks and apparel retailers over the next 12 months.
The report also notes a shift in preferences among equity managers, with a preference for domestic equities over ZAR hedges. The risks identified include political shifts to the left and weak earnings per share (EPS) as the top concerns. Additionally, a near-record number of managers believe that monetary policy is too restrictive.
In terms of sector preferences for the next 12 months, banks, apparel retailers, and software are favored, while real estate, chemicals, and platinum are least preferred. Defensive domestic sectors such as telecoms, food producers, and life insurance are gaining favor, whereas defensive ZAR hedges like tobacco and gold are losing appeal.
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