South African bull run expected
Asset managers are cautious about the returns generated by South African assets in the short term but are extremely bullish about local equities over the next year.
Bank of America revealed this in its South African Fund Manager Survey for January, where asset managers were asked about their outlook for 2025.
Bank of America’s South Africa strategist, John Morris, explained that a common belief among professional investors in the country is that local equities are undervalued.
This is despite the substantial rally in local assets since the formation of the Government of National Unity (GNU) in June 2024.
At the time of the election, around 70% of asset managers believed South African equities were undervalued. Now, only a third think so.
However, a majority believe that further rerating of local equities will occur in 2025 as the country’s economic growth picks up and government finances improve.
At the end of 2024, the mood around South Africa’s economy and local equities was vastly more optimistic than at the beginning of the year.
This is primarily due to load-shedding now seemingly being a thing of the past and will most likely never again be as severe as in 2022 and 2023.
This was due to a significant increase in private production and operational improvements at Eskom.
Furthermore, a centrist GNU was formed, prioritising growth-boosting structural economic reforms and ongoing gradual fiscal consolidation.
Another tailwind for local equities is the likelihood of further interest rate cuts from the Reserve Bank throughout 2025.
Asset managers expect the bank to cut rates twice in 2025, by 25 basis points each cut. This would take the repo rate to 7.25% – slightly above its pre-pandemic levels.
As a result, the general consensus among the asset managers surveyed is that the JSE All Share Index will end the year up 15% in rand terms.

Morris explained that with this expected return from the JSE All Share Index, most asset managers think it will be the best-performing investment in 2025.
The return the JSE provides will be followed by gold in rand terms as the precious metal is set to benefit from increased global uncertainty and elevated inflation in developed economies.
The third best investment in 2025, according to local asset managers, is expected to be the S&P500 in rand terms.
Asset managers do not expect the S&P’s spectacular returns over the past two years to continue and anticipate Trump’s policies may create a sugar high that will not last.
Furthermore, inflation in the US is picking up and with a strong economy, the Federal Reserve will not have room to cut interest rates in 2025.
Bank of America does not expect the Fed to cut rates in 2025, as Trump’s policies result in elevated inflation and potentially overheat the US economy.
US stocks have already discounted at least some of the good equity fundamentals of strong growth and falling interest rates in advance.
The correction could be severe if there is any disappointment in economic data or company earnings.
Although the fundamentals described above should be supportive for the US equity market in the interim, across-the-board challenging valuations will possibly constrain future returns.
Regardless of whether looking at forward P/E, forward price-to-book, forward price-to-sales, or forward EV/EBITDA valuation measures for the US stock market, all of these are trading well above historical averages.
Morris was clear that this does not mean South African asset managers are selling out of their offshore positions but rather that they will not look to add to them.
Data shows that around 32% of funds are invested outside of South Africa, well below the regulatory maximum of 45% and lower than the 35% average through 2024.
Morris explained that asset managers will remain hesitant about offshore investments until the potential effect of a Trump presidency on equities becomes clearer.
This means local asset managers may wait to see how much of Trump’s agenda can be implemented without any challenges or delays.
Comments