Survey finds majority of SA’s investment managers overweight on equities

In its latest South Africa Fund Managers Survey, the Bank of America has reported that a net 57 percent of managers are overweight on equities, the highest since 2011. According to John Morris, the South Africa Investment Strategist at Bank of America, the trend is driven by the pressure on bonds due to rising US 10-year bond yields, which has pushed fund managers towards equities. The favorable conditions for equities, such as strong commodity prices, have further incentivized managers to shift their investments. Historically bullish on bonds, fund managers are now more enthusiastic about equities, expecting an average return of 16 percent compared to 12 percent for bonds in the next 12 months. This shift in sentiment is also reflected in managers' preference for South African domestic investments. While the survey indicates a high percentage of fund managers bullish on equities, there is a noted movement away from platinum group metals as investors potentially foresee the end of the platinum sector's bull cycle. Although still confident in the sector's prospects, managers are trimming their weight in PGMs. Bonds, however, remain an attractive option for many managers, with a net 64 percent viewing them as valuable investments. Despite concerns about South Africa's rising debt to GDP ratio, the managers see bonds offering good real returns, especially in the current environment of strong commodity prices. The potential for bond yields to decrease further from the current level of around 9.30% to as low as 8.5% adds to the appeal of bonds as a tactical investment. On the energy front, there are mixed views among managers regarding Eskom reforms. While recent developments like the allowance for companies to generate their own power signal progress, the overall pace of reform is seen as slow. Managers highlight ongoing concerns about maintenance issues and the need for substantial reforms to ensure consistent energy supply. The survey also points to broader economic reforms, including skills development, labor regulations, and land expropriation without compensation, which continue to impact investor sentiment and appetite for South African stocks. Despite the positive outlook driven by strong commodity prices, uncertainties around reforms and other economic factors are keeping some investors cautious about the South African market.