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South African stocks set for a rally after elections

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South African fund managers believe there will be a rally in local stocks after the 29 May elections, with banks, metals and mining, and tech sectors being favoured.

This was revealed in the latest South Africa Fund Manager Survey (SAFMS) conducted by Bank of America Global Research.

Respondents to the survey predict that, over the next twelve months, equities are expected to yield 15%, with R2035 bonds at 20% and cash at 9%. 

The survey found a notable increase in bond bulls and a decrease in cash bulls. It also indicated an overweight sentiment towards cash, bonds, equities, banks, health, and tech sectors.

A defensive sentiment has prevailed among South African fund managers before the elections on 29 May this year.

However, the survey identified a resurgence in favour of resources while the consumer sector is set to fade due to delayed rate cuts. A significant 70% of respondents anticipate a rally after the 29 May elections.

In addition, banks, metals and mining, and tech sectors are favoured over the next twelve months. 

Real estate and food retail are set to lag behind, while currently lagging sectors such as metals and mining, telecoms, and life insurance are gaining momentum.

While fund managers anticipate policy shifts to the left after the elections, they foresee a rally in domestic stocks post-elections. 

“There’s optimism regarding economic strength and lower inflation over the next twelve months,” the survey found.

The survey’s findings echo the opinion of the head of equities research at Old Mutual Investment Group (OMIG), Meryl Pick, who said South African stocks are beginning to show their value.

Pick said some green shoots are apparent in certain sectors, particularly local banks and clothing retailers.

She explained that the asset manager is not building its portfolios around the potential outcomes of the national election in May. 

“We do not seek to position our portfolios around the May 2024 elections given that the outcome is so uncertain,” Pick said. 

“Instead, we favour a diversified approach that includes some exposure to gold as well as defensive rand-hedge shares like British American Tobacco and Anheuser-Busch InBev.”

Pick said the move back towards South African stocks is not a complete shift but a gradual increase in exposure to local companies depending on where OMIG finds the best value. 

“We have been incrementally tilting our portfolio back to SA Inc. as we anticipate a better year ahead, primarily due to the reduced level of load-shedding being factored into our projections,” she said.

“This should mitigate some of the commodity inflation pressures in areas such as food, oil, and energy. As a result, conditions are improving slightly for consumers and potentially enhancing growth prospects.”

More specifically, the tilt towards local stocks includes a rise in exposure to domestic banks and clothing retailers, driven by the belief that the country has reached peak interest rates and load-shedding will ease. 

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