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Local fund managers view 2012 in slightly more bullish light

Local fund managers are more bullish about the prospects for the South African equity market, driven largely by optimism for financials and resources.

This is one of the general findings of Investment Solutions’ first fund manager survey for 2012. The survey, conducted amongst 15 South African fund managers every six months, aims to gauge fund manager sentiment on topics such as local and foreign equity markets, commodity prices and general economic trends.

Of those surveyed, 71% of fund managers were mildly bullish about local equities. “This represents a positive change from the second half of 2011 when 62% were neutral and expected the JSE All Share Index to end the year between 30 000 and 34 000 points” says Thobile Thukani, Market Analyst at Investment Solutions.

Specifically, managers have become more optimistic on financial and resources stocks though less bullish on industrials – a sector that performed very well last year.

“The industrials sector has re-rated quite significantly in the past year and is now trading at a premium to resources and financials. This industrials sector premium also reflects the continued foreign demand for South African consumer or defensive shares” says Thukani.  

Certainly retail received a lot of attention last year as consumer spending dragged the local economy out of the doldrums and Walmart took its first steps into Africa with the acquisition of Massmart.

While 50% of fund managers are neutral on gold bullion “considering that only 10% were positive in the second half of 2011, sentiment towards the yellow metal is definitely turning positive” adds Thukani. In the second half of last year 10% of managers expected the price to end between $1 600 and $1 700. Today 29% are mildly bullish, expecting the price to be between $1 700 and $2 000 by year-end.

Equities and inflation-linked bonds were the most favoured asset classes, while nominal bonds, property and cash were least favoured “consistent with investors’ search for yield in a challenging economic environment” added Thukani.

The search for yield also extends to developed markets with 57% of local fund managers mildly bullish on the S&P 500, expecting the index to close the year between 1 350 and 1 500.

The rand is not expected to provide too many surprises with two thirds of fund managers neutral on the direction of the local currency anticipating trade between R7,50 and R8,50 to the dollar by the end of the year. Only 7% of fund managers expect the rand to strengthen while 27% believe there will be further weakness towards year-end.

Good news on the home front is that 80% of managers expect local growth to reach between 2,5% and 3,5% by the end of the year.

Globally, 67% of local managers are neutral on growth prospects for the United States, expecting the United States growth rate to average between 2 and 3% by December 2012. A minority, 7% of managers, are optimistic, expecting growth in the US to exceed 3%.

Overall, the survey reflected that managers have turned more bullish since last year. This is expected given that “data out of the US has surprised on the upside more recently while the ECB has also committed to provide unlimited liquidity to European Banks” concluded Thukani.

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