Fund managers bullish about JSE

Local fund managers are the most bullish they have been on domestic equities since 2013, forecasting an average level of 64,000 in 2018 for the JSE’s all share index.

Local fund managers are the most bullish they have been on domestic equities since 2013, forecasting an average level of 64,000 in 2018 for the JSE’s allshare index, according to Bank of America Merrill Lynch.

While “bearishness” described the mood heading into the ANC elective conference in December, “bullishness” among equity managers shot up in January, said John Morris, strategist at Bank of America Merrill Lynch, which surveyed fund managers in January.

The Alsi rallied after the announcement of Cyril Ramaphosa’s victory, shooting up to its highest level yet in the first few weeks of 2018, as the market took a more optimistic view of SA’s prospects under a Ramaphosa-led ANC.

Bank of America Merrill Lynch had upwardly revised its GDP growth forecast for SA from 1.5% to 1.8% in 2017, said Morris. Goldman Sachs, meanwhile, revised its growth forecast for the country from 1.5% to 2.3% following the ANC conference, saying in a January report that SA was the emerging market to watch in 2018.

The IMF, on the other hand, said in January it expected SA’s growth to come in below 1% for the next two years.

Now in its 20th year, the Bank of America Merrill Lynch survey incorporates the views of 13 of SA’s largest managers. Fund managers surveyed expect the economy to strengthen over the next year, with more than half anticipating the next move in interest rates to be downwards, said Morris. “No manager says the market will be down” in six months.

However, David Cook, founder and portfolio manager of global equity boutique Old Mutual Titan, said the local market was still “reasonably expensive” in absolute terms.

“The environment, even after the Cyril Ramaphosa ANC win, does not instil confidence among investors.” A relatively poor outlook for domestic earnings growth would hamper future returns, said Cook.

A record number of managers that were surveyed were overweight general miners. Managers had also moved more overweight financials.

This mirrored the findings of Bank of America Merrill Lynch’s global fund manager survey. Globally, managers were climbing into cyclical plays — such as banks and industrials — and selling defensive plays, such as utilities and bonds. The survey gathered the views of 183 participants with $526bn in assets.

“A majority of investors now expect a peak in equity markets in 2019 or beyond, pushing back the timing by two quarters from December, when the majority expected a top in [the second quarter of 2018],” it found.