Two-thirds of SA managers view SA bonds and equities as undervalued

THE Bank of America’s (BofA) latest South Africa fund manager survey found that two-thirds of the managers they spoke to viewed local bonds and equities as undervalued.

For the past 58 months, or almost five years, most local fund managers have told the BofA that they view local bonds as undervalued.

The survey found that 73% of the managers see more ‘buy’ opportunities in the local market than ‘sell’ opportunities.

About 67% of managers surveyed were ‘most bullish’ on SA equities, 20% were ‘most bullish’ about local bonds, and 13% were ‘most bullish’ about cash. About 20% of managers were ‘most bearish’ about commodity prices.

The latest BofA survey was conducted between 8 March and 14 March and incorporated the views of 15 managers.

The managers indicated that they believed local bond yields were at a peak. On average, they would sell the R2035 South African bond that matures in February 2035 at 10.43%. During the survey, the R2035 bond yielded 11.67%.

Of the managers surveyed, 73% believe local equities will be higher in six months, up from 63% in February and 50% in January.

The managers indicated to the BofA that they are adding to their domestic positions.

Plans to increase SA equity weighting

Over the next three months, 27% of the managers told the BofA that they intend to increase their weighting to SA equities, 13% plan to decrease their weighting, and 47% intend to maintain their weighting.

When it comes to offshore investments, 13% of the managers told the BofA that they were overweight this asset class, 53% were underweight, and 20% neutral.

On a three-month view, the respondents to the survey intend to increase their weighting by 27% to offshore assets

IN A NUTSHELL

According to the Bank of America’s (BofA) recent survey of South African fund managers, approximately two-thirds of these managers consider local bonds and equities to be undervalued. This sentiment has persisted for quite some time, with most local fund managers expressing the view that local bonds are undervalued for nearly five years now¹.

Here are some key findings from the survey:

1. Local Bonds:
   • 73% of the managers see more ‘buy’ opportunities in the local bond market than ‘sell’ opportunities.
   • The managers believe that local bond yields have peaked, with an average yield of 11.67% for the R2035 South African bond that matures in February 2035.
   • Despite this, no manager has added to their resources holdings in the past five months, even though the index has fallen about 9% over that period and 29% in the past 14 months.

2. Local Equities:
   • Approximately 67% of managers surveyed were ‘most bullish’ on SA equities.
   • 73% of the managers believe that local equities will be higher in six months.
   • They are adding to their domestic positions in anticipation of positive growth.

3. Offshore Investments:
   • Managers invest 33% of their assets offshore, below the Regulation 28 limit of 45%.
   • However, they intend to increase their offshore assets to about 42% of their total allocation.
   • On average, they would still like to invest about 9% of their SA assets under management abroad.

4. Platinum Stocks:
   • 7% of managers are overweight on platinum stocks, while 9% are underweight.

In summary, the prevailing sentiment among South African fund managers is that both local bonds and equities present attractive investment opportunities, despite the challenges posed by market fluctuations and global economic condition

Sources: Citywire, IOL

• Brett Silberg is a Risk, Wealth and Employee Benefits Expert.
  He can be reached on 084 602 6298 (mobile), 
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