Bonds lose their shine as asset class in SA
A FUND manager survey conducted by Bank of America Merrill Lynch showed that South African equities had more equity buys than sells this month – the first in more than six years.
The study found that managers added to local equities, property and cash while reducing exposure to local bonds. Within local equities, they added exposure to industrials, but sold resources and financials stocks. Cash was found to be the favourite asset class, while bonds are now the least preferred asset class.
“Over the past 12 months, general mining and banks have proved the most rewarding sectors; tobacco the most disappointing. Real estate experienced the largest positive gain,” the report said.
The general miners, in particular, have benefited from reasonable commodity prices and low costs curves, which have allowed them to turn profitable. The domestic equity market began the year with a strong January, but has since seen significant volatility arising as a result of both local and global concerns.
Nishlen Govender, a portfolio manager at Citadel, said there was little in the way of upside, except for names like Richemont, which owed a lot of its performance to the weakness of the rand.
“The only sector that has performed well is basic materials, led by the diversified miners and Mondi… there is a plethora of SA Inc stocks that have also underperformed, including the likes of MTN, Vodacom, Bidvest, as well as the banks,” Govender said.
The long-suffering South Africa’s mining industry has faced torrid years, shedding thousands of jobs and weighed on the share price performance of particularly gold and platinum producers.
David Gibb, a fund manager at Anchor Capital, said it would be naive not to heed the enormous challenges South Africa faced and that investors should also consider offshore exposure.
“Mining is no longer the force it once was, due to major government policy missteps and the geological obstacle of narrow vein deposits in deepening platinum and gold mines. And Naspers is already some 20 percent of the JSE All Share index,” Gibb said.
The significant volatility in the rand this year has also caused much concern in the local equities as investors ditched emerging markets assets as global trade tensions increased.
Izak Odendaal, an Investment strategist at Old Mutual Multi-Managers, said the rand was not the share price of the country and “we do not need to be despondent if it weakens”.
“Appropriate diversification remains the best defence, rather than battening down the hatches. Finally, storms pass, but in their wake often provide opportunities when currencies, asset classes or securities are oversold,” Odendaal said.