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South African assets may have been buoyed by the formation of the Government of National Unity (GNU), but international investors are not yet convinced.
The 2024 national elections saw the ANC lose its majority in parliament for the first time in the democratic era, with it accruing only 40% of the vote.
The ANC thus formed a GNU with ten other parties, most notably the DA and IFP, which are both seen as business-friendly.
After the announcement, South African equities, bonds and the rand strengthened significantly.
The Bank of America’s (BofA’s) latest South African Fund Manager Survey showed a bullish outlook on equities amongst South African investors.
The survey shows a huge jump in investor optimism, with 82% of respondents expecting more buys than sells for equities over the next 12 months.
88% of managers would also overweight domestic stocks over the next 12 months, while 77% said that they were optimistic about equities over the next three to five years.
Banks, apparel retail and software were the most promising sectors among fund managers.
A higher net of 82% (47% in June) also expects the economy to get a little stronger over the next 12 months.
A similar net of 76% also showed that inflation to be ‘slightly lower’ over the next 12 months. BofA’s economists expect the South African Reserve Bank (SARB) to cut interest rates in September amid the lower inflation prints.
Despite the boost in South African assets, Ninety One portfolio manager Duane Cable said that foreigners have not yet fully bought into the GNU, especially in the equity market.
Since 2016, foreigners have been net sellers of South African equities, and this is still the case following the formation of the GNU.
According to Cable, foreign investors are adopting a “show me” approach before backing the South African market.
Given their worldwide popularity, foreign investors are used to coalition governments, but many ultimately fail.
Looking forward, Cable added that South Africa has to show real growth initiatives before foreigners get involved.
Historically, foreigners made up roughly 50% of the equity market and 45% of the bond market. Today, this is around 25% to 35%
That said, Cable’s team is still invested in several SA Inc. shares, including Standard Bank, FirstRand, Capitec, Santam, Discovery, and the JSE.
These businesses have been able to muddle through a very tough environment for the last five years.
If there is growth, Ninety One’s bull case sees these stocks improving.
The strengths of the GNU
Although the GNU has yet to get approval from international investors, its formation does present an opportunity for the government’s top brass.
Ninety One’s other portfolio manager, Malcolm Charles, said that the GNU rejected left-wing populist ideals to form a party predominantly of the centre-left and centre-right.
Charles added that President Cyril Ramaphosa has appointed a respectable cabinet.
A potential upside of the proliferation of parties is that ministers are now in competition with one another.
This means that delivery should be a lot better than the 6th administration.
This should lead to faster reforms, which would boost the economy and create more jobs.
SOURCE:Investors still not sold on South Africa – BusinessTech
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