Asset manager Old Mutual Investment Group (OMIG) says that despite the JSE reaching record highs after the general election in May, foreign investors are still taking a wait-and-see approach to local markets.
Jason Swartz, portfolio manager at OMIG, said that despite the recent rerating SA assets remained undervalued.
“Despite the recent strong showing by the JSE, SA is currently experiencing an underwhelming show of foreign confidence in our stock markets as foreign investors are still exiting the market, with around R95bn leaving the country year to date (to week ending September 6 2024),” said Swartz.
“While this flow is somewhat distorted by the inclusion of dual-listeds and ADRs, adjusting for this anomaly still suggests a lacklustre interest by foreigners in our market. This is also despite local equities having weathered recent global market upheavals better than many of its peers.
“For the pendulum to truly shift on foreign investor sentiment, they will need to see more movement around improved performance from state-owned enterprises, alongside a stable centrist government of national unity (GNU) and sound policymaking, which would unlock value in local financial markets.”
The JSE all share index hit a record high on Wednesday, continuing its rally since the formation of the GNU.
A survey on behalf of Bank of America (BoA), conducted by research firm Ipsos, has found a record number of fund managers expected the GNU to implement “meaningful reforms” that could see the local markets deliver returns in excess of 10% over the next 12 months.
The BoA global research SA fund manager survey found that asset allocators expected an average return of 17% on equities in the coming year, 8% for cash holdings and 13% on government bonds maturing in 2035. The survey found that the rand was expected to strengthen further in the short to medium term, to about R17.12/$.
Almost 90% of the fund managers surveyed were overweight domestic stocks, particularly in banks, apparel, retail and general industrials, reflecting growing confidence in SA’s equity market.
Two-thirds of the managers polled believed local equities were undervalued, signalling potential growth opportunities, while one-third saw value in SA bonds.
JSE CEO Leila Fourie said last month that the bourse had seen the largest year-to-date foreign inflows to the bond market since before 2020.
Swartz said investors had found hope in the SA Inc story due to a 175-day-long and counting hiatus in Eskom’s load-shedding intervention, and May election outcome, and this upbeat sentiment had been reinforced by some local asset managers reining in some of their offshore exposure in favour of onshore exposure due to concerns of heightened global risks and excessive valuations. He said that if strong turnarounds in Eskom and Transnet persisted, SA could once again find a place in global investors’ emerging market portfolios.
“Local allocators of capital are at capacity in SA asset classes and are already heavily invested in local nominal bonds and equities. Within the dual context of regulation 28 and local fund managers’ value bias, SA investors are unlikely to maintain local asset classes at pre-Covid heights based on local improving sentiment alone,” said Swartz.
“The game changer is for improving foreign investor sentiment and their return to domestic markets. We need foreigners to step back in to introduce the levels of liquidity necessary to take the JSE to the next level.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.