South African fund managers’ bullishness about equities has softened, but metals and mining and banks remain top picks, while gold, healthcare and brokers are among the least favoured stock picks.
This was according to the latest BofA Global Research South Africa Fund Manager Survey, which shows that local fund managers are becoming less optimistic about the economic outlook but are increasingly convinced that South African equities are undervalued.
A net 45% of fund managers now view equities as undervalued, up from 33% last month and 27% in July. At the same time, a net 64% expect the All-Share Index to be higher over the next 12 months, slightly lower than the 67% recorded last month and well below the February peak of 88%.
Expected equity capital returns ticked up to 10.5%, while EPS growth expectations eased to 11.7% from 12.9%.
A net 73% continue to see more buying than selling opportunities. Against this backdrop, fund managers appear increasingly comfortable holding existing positions, with 64% intending to maintain current exposures, a six-month high, up from 56% last month.
A policy shift to the left, weak earnings and sticky inflation remain the key concerns for South African equities.
The macroeconomic backdrop has become less supportive. A net 45% expect the economy to strengthen over the next 12 months, down from 67% last month and 94% in January.
A net 73% now expect lower inflation, versus 44% previously. Monetary policy expectations have turned more hawkish, with a net 33% expecting higher interest rates, up from 25% last month.
The survey points to a rate hike in the third quarter, followed by another hike in the fourth quarter, before a cut in the first quarter of 2027.
Metals and mining remain the top sector overweight for a fifth consecutive month and continue to screen as stretched relative to history. Software is now the second-largest overweight, followed by banks and platinum.
Gold and real estate are the most underweight sectors, while positioning in heavy industrials is the weakest since late 2019. Telecoms recorded the largest improvement in sentiment, although the sector remains in net bear territory, BofA’s analysts said in the report.
edward.west@nationalmg.co.za
THE NATIONAL