SA’s fund managers see equity market up in 6 months: BofA Survey

In the latest Fund Managers Survey by Bank of America, the outlook for the South African equity market appears positive, with 80% of fund managers indicating that they anticipate an upswing in the market in the next six months. Additionally, a net 73% of respondents have expressed a preference for more buys than sells, signifying a strong bullish sentiment in the market. Looking ahead to a 12-month forecast, fund managers are projecting equity returns of around 13%, indicating a favorable outlook for investors in the coming year. To delve deeper into the findings of the survey, John Morris, South Africa Investment Strategist at Bank of America, joined CNBC Africa to provide insights and analysis on the data gathered. Morris highlighted the expected returns on different asset classes over the next year, with equity managers foreseeing a total return of 13%, bonds at 11%, and cash trailing at a lower 5%. This positive sentiment towards equities and bonds suggests that fund managers believe these sectors will offer lucrative opportunities for investors. One notable trend observed in the survey is the shift in focus from resources to domestic stocks within the South African market. Despite the recent strength in resource-related investments driven by surging commodity prices, fund managers are increasingly looking to rebalance their portfolios by allocating more capital towards domestic stocks. Morris explained that the rapid appreciation of resource prices led managers to take profits, prompting a move towards domestic equities expected to benefit from high commodity prices and robust economic growth. The shift towards domestic stocks underscores the optimism among fund managers regarding South Africa's economic prospects in the coming months. With a unanimous agreement among managers that the economy is poised for growth, the survey reflects a bullish outlook on the domestic market. Morris emphasized the potential for close to 4% growth in South Africa this year, supported by strong commodity prices and steady economic conditions globally. Concurrently, the preference for domestic stocks is reinforced by high commodity prices, which help drive down bond yields and bolster the attractiveness of domestic equities. The resilience of the agriculture sector and its positive impact on the economy further contribute to the enthusiasm surrounding domestic investments. Surprisingly, fund managers have favored domestic stocks over telecom companies, a shift that deviates from the pandemic-induced trend of increased reliance on technology and communication services. The survey revealed a preference for sectors like banks and retailers, signaling a shift in consumer spending patterns post-lockdown. This unexpected tilt towards retailers over telecom reflects fund managers' bet on evolving consumption behaviors and a desire to position themselves in cyclical domestic sectors rather than defensive ones. Despite the prevailing optimism in the market, fund managers remain wary of certain risks that could potentially impede their predictions. Weak earnings and left-leaning policy shifts are identified as primary concerns, with structural reform in South Africa also lacking confidence among respondents. The impact of COVID-19 remains a prominent risk factor, although some managers express doubts about the efficacy of the vaccine rollout. While concerns about a third wave's economic repercussions exist, the top risk identified by fund managers is weak earnings, underscoring the importance of corporate performance in driving market sentiment. In conclusion, the Fund Managers Survey by Bank of America paints a picture of cautious optimism among South African fund managers, with a strong bullish sentiment towards equities and domestics amidst the backdrop of a recovering economy. Despite lingering risks, the overall outlook appears positive, highlighting the potential for growth and investment opportunities in the South African market.