Local asset managers expect South African equities to outperform their global counterparts in 2024, indicating a strong shift in sentiment from institutional investors.
This was revealed by Bank of America’s South Africa Fund Manager Survey.
The survey showed renewed optimism surrounding South African assets, with managers anticipating double-digit returns from the domestic stock market.
79% of those surveyed plan to increase their exposure to local stocks.
This positive sentiment stems from the perceived undervaluation of the equity market, leading many managers to believe there are more opportunities to buy than sell.
Amongst specific sectors, banks, general industrials, and food producers are most favoured, while gold, telecoms, and real estate currently occupy the bottom of the preference list.
Notably, food producers and retailers saw a significant rise in popularity.
Asset managers said retail stocks are back in favour as they are set to deliver high returns due to their ability to pass on their rising costs to consumers.
Furthermore, the sector is set to receive a tailwind from less severe load-shedding and expected interest rate cuts later in the year, which will free up consumer spending.
“Consumer sectors are gaining ground over financials, indicating changing investor preferences amid economic conditions. The survey reflects a more defensive stance among managers, with a preference for domestic assets over offshore ones,” the survey’s report read.
South African equities are not the only local asset expected to outperform, with local government bonds also providing solid returns.
However, some have cautioned that South African assets can continue their underperformance in 2024 due to the country’s structural economic constraints.
Citadel’s chief economist, Maarten Ackerman, highlighted that South Africa will face significant challenges this year, including the poor performance of state-owned enterprises like Eskom and Transnet.
The country’s national elections will provide a further challenge with heightened uncertainty likely to result in a lack of investment in the country.
Ackerman also cautioned against being overly optimistic about the performance of the US equity market in 2024 as it is unlikely that it will be able to repeat its strong performance from 2023.
“We must remember that many of the returns seen in 2023 were driven by the theme of artificial intelligence (AI). Here we talk about the magnificent seven companies: Apple, Microsoft, Alphabet (owner of Google), Amazon, Nvidia, Tesla and Meta,” Ackerman said.
These companies were responsible for most returns seen on the S&P 500 index last year. If these seven companies were excluded, equity performance for 2023 would look very different.