GLOBAL RESEARCH MEDIA RELATIONS

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SA FUND MANAGER SURVEY

 [1] Fund Manager Survey: Manager reform hopes off the lows [1]

·  Managers are cash & bond bulls. Net 33% see accelerating reform (off Q2/3 lows). More want to overweight domestic stocks +12M

·  Managers expect a tough Budget, but no prescribed assets being introduced. 60% (30%) expect an improving economy. Rate cut Q4

·  +12M equity TR 6%; bonds 10%. Equity weights at survey lows. Offshore cash survey high. Tobacco, banks and platinum preferred LOW CONVICTION ON ASSET CLASSES. EPS THE MAIN EQUITY RISK

On +12M, managers are cash and bond bulls and equity and commodity bears. They are overweight local cash and want to invest offshore. Offshore cash is a survey high 10%. On +12M, tobacco is the #1 preferred sector (edging out banks); real estate last - a survey record low score. REFORM STIRS: a lower 40% (90% in August) expect S. Africa to leave the WGBI by end-2020, whilst a net 33% see accelerating reform (off Q2/3 lows). More managers want to overweight domestic stocks +12M. A net 27% (60%) see no operational solutions for Eskom.

GROWTH EXPECTATIONS RISE; RATE CUT Q4

On +12M, 60% (30%) of respondents expect an improving economy; a net 27% (10%) expect higher inflation. The +12M repo forecast rose slightly to 6.14% (vs. 6.50% spot). A higher 87% (80%) expect the next rate move to be a cut, the majority in Q4. The +12M USDZAR forecast rose to 15.03 (14.51), whilst the 10Y bond yield forecast firmed to 8.73% (8.89%). Consensus would buy 10Y bonds at 9.0-9.5%. Managers expect a tough mid-term Budget, but do not see prescribed assets being introduced (Chart 1).

+12M EQUITY TR 6%; BONDS 10% (EQUITIES CROWDED OUT)

By manager, a steady net 60% are overweight cash (TR 7.68%). Fewer managers are underweight equities and bonds (weights rising). Total equity weights are at survey lows. The +12M All-Share index forecast eased to 56k (+12M EPS growth +7%). The All-Share range slid lower to 49-60k. Equities are seen as fairly valued; bonds undervalued.

TOBACCO, BANKS, PLATINUM PREFERRED; REAL ESTATE RANKS LAST

+12M tobacco ranks #1, followed by banks and platinum (general miners slip to #8). Real estate, chemicals and healthcare are least preferred. Platinum and gold gained over chemicals; general retail over real estate. Largest overweights by manager: banks, life, platinum, tobacco; underweights, real estate (a survey low).

CHART 1: WILL THE 30TH OCTOBER MID-TERM BUDGET? WILL PRESCRIBED ASSETS BE INTRODUCED IN SOUTH AFRICA?

Source: BofA Merrill Lynch October 2019 South Africa Fund Manager Survey