South African fund managers are increasingly focused on miners and gold, whose price has been on a runaway streak, as the consumer sector fades in light of elevated inflation, stubborn interest rates and uncertainty to the political framework ahead of the key May 29 election.
In its latest Fund Manager Survey released yesterday, the Bank of America (BofA) said fund managers were “thinking of buying resources” for the “first time” in six months.
“Prior surveys highlighted negative sentiment indicating a ‘bottom or near bottom’. A lower net 59% would overweight domestic stocks (while) a low net 6% say it is too early to buy interest rate sensitives,” BofA said.
The survey was conducted this month from April 5 – 11, with the consumer sector losing “the most ground” in the perspective of fund managers.
About 35% of the managers surveyed “want to invest cash” while a higher net of 29% want to invest in South African bonds.
Fewer managers, a net of 18%, showed an inclination to invest their funds abroad.
The preferred South African sectors for investment included banks, metals and mining, and software, while real estate, drug and grocery retail, chemicals, and telecoms made up the least preferred.
Regarding the equities market, a higher net of 35% of managers were positioned in favour of bond bulls while a lower but still strong net of 29% were on the side of equity bulls.
A net 53% were positioned in favour of cash bears.
“Survey responses support higher equity/bond returns, on average. A net 71% say equities are undervalued, 82% see stock ‘buys’. Asset allocation (is) more defensive (as) resources gain ground over consumers,” BofA said.
The consumer sector was less bullish because of the delay in rate cuts by the South African Reserve Bank.
It is expected that the delayed rate cuts are in line with elevated inflation and a weaker rand, which are all projected to keep consumer spending lower.
In addition to this, political risks to the South African framework were “not extreme” especially with most fund managers expecting domestic stocks to rally after the elections.
About 88% of surveyed fund managers saw “reform” at the same pace, arguing that South Africa “has a major problem”, especially around poor skills outcomes, wage rigidity, government intervention and policy as well as delivery failures.
State-owned enterprises and municipalities have tipped logistics and infrastructure such as electricity, rail, ports and water into inefficiency.
This was affecting the viability and capacity of local companies, especially those that import and export.
Mining companies have also been affected by water shortages, adding to the port and rail woes that are hobbling production and ratcheting up mineral stockpiles at the mines and at ports.
Slightly over half of surveyed fund managers said South African bonds were undervalued, with the managers rotating local equities by buying resources and selling financials as well as industrials and switching bonds into cash.
They also sold offshore bonds to raise, however, offshore investments were well off the regulatory 45% limit at 34%.
In terms of rate cuts, up to 94% of managers surveyed expect the next repo rate move to be a cut.
BUSINESS REPORT