South African fund managers have been chuffed with the Government of National Unity (GNU), with Bank of America’s latest survey showing the managers largely positive of reforms, lower interest rates going forward and a stronger rand exchange rate.
Ahead of South Africa’s May 29 elections, most South African fund managers flagged uncertainty, although they were optimistic that domestic stocks would rally post the election.
Now, Bank of America’s latest South Africa Fund Manager Survey shows that more than half of surveyed fund managers at 56% “see reform, a firmer rand and lower rates” forecast.
About 89% of respondents to the survey were overweight on domestic stocks, with banks, apparel, retail and general industrials most preferred.
“Investors are thinking of adding to domestics; then maintaining positions. No managers wants to add to resources. High positioning relative to history in equities, bonds, retailers/food producers, software and gold. Low relative positioning in cash, offshore, chemicals,” reads the Bank of America report.
Most importantly, South African fund managers surveyed for the report were positive of policy reform under the GNU. Other South African executives and business leaders have also said that the operating framework is improving under the GNU, although others say they only expect the ports and rail logistics logjam to ease starting next year.
“A survey record net 56% see reform accelerating post elections. The glass has moved from half empty to half full. A bullish turn for South Africa on a multi-year view,” reads the report.
However, South Africa is seen as still having problems around a poor skills outcome framework, wage rigidity, government intervention and policy and delivery failures, with state-owned enterprises and municipalities in the logistics, electricity and water sectors still encountering hurdles. A long-term rising debt profile was also a cause for worry.
Other analysts and market watchers say “South Africa’s stocks remain attractively valued versus the S&P 500 and other emerging” markets. Paul Stewart, managing director for Merchant West Investments, said earlier that investment opportunities still existed in South Africa in spite of current challenges.
“Even after adjusting valuations for the low growth environment, our equity and bond markets are as cheap as they have been since 1994,” said Stewart.
Fitch Ratings said this month that South Africa needs to do much more to uplift economic productivity, with the improvement in electricity supply alone unlikely to transform the country’s supply-side performance on its own over the medium-term outlook.
“More reliable power will not transform South Africa’s supply-side performance over the medium term, although it should result in a significant reduction in supply-side constraints in the next couple of years,” said Fitch Ratings last week.
Fitch now projects South Africa’s potential growth rate at 1% over the next five years, which is an improvement on the past few years. However, it flagged that this was “still very low by emerging-market” standards.
BUSINESS REPORT