BofA says buy dips in South Africa stock market

Feedback from approximately 25 meetings with clients in Cape Town and Johannesburg revealed a wavering sentiment towards South African domestic assets over a 12-month period, Bank of America analysts said.

Initially positive, the mood shifted as the discussions progressed, with global economic conditions and news proving difficult to navigate. The conversations centered on the potential impact of tariffs on U.S. growth, inflation, the Federal Reserve’s policy path, the S&P 500, China’s economy, and South African growth and earnings.

Questions were raised about the reasons for a possible re-rating of South African assets, the management of resources, and the current sentiment of foreign investors. BofA analysts responded that the confusion and uncertainty could raise the value of waiting before investing.

They linked their ’BIG’ theme for 2025, which includes U.S. Bonds, International markets, and Gold, positively with South African assets. Analysts predicted that the end-game for tariffs could involve a renegotiation of the USMCA, permanent tariffs with China, and that widespread tariffs would not resolve U.S. deficits. A peace deal could be bullish for emerging markets if it leads to a higher EUR/USD and lower energy prices.

The bank’s analysts expressed caution regarding the S&P 500, suggesting that further bear market indicators warranted caution. They also mentioned the possibility of a reversal from Growth to Value stocks, should the Fed’s cutting cycle come to an end.

BofA recommended buying into market setbacks in the first or second quarter of 2025, anticipating a rebound in the second half of 2026. However, they noted that South Africa’s lack of flexibility could hinder optimal growth outcomes.

Regarding South African growth, clients agreed on the prospect of higher U.S. inflation lasting longer and raised concerns about a potential U.S. recession and the bottom of the S&P 500. They were surprised by BofA’s forecast of no further Fed or South African Reserve Bank (SARB) cuts for 2025 and were frustrated by the SARB’s lack of easing.

Clients also questioned the likelihood of a weaker dollar and expressed skepticism towards a strong case for broad resources without Chinese demand, showing more interest in platinum than gold stocks.

Investment managers saw value in domestic equities but sought catalysts for growth. They expressed caution about BofA’s projected 12-month total return for ’old guard’ banks and noted that excitement for retailers had waned.

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