Local is lekker
Local equities remain the preferred investment choice for asset managers and returns of 10% are expected over the next 12 months.
That is the houseview of six asset managers surveyed in Sanlam Personal Portfolios’ (SP²) fourth quarter Bull and Bear Report. Local equities have consistently been favoured above bonds since the first survey was released in February 2004.
Based on the survey’s findings, the rand is expected to depreciate against the US dollar and euro over the next 12 months.
Most asset managers predict an exchange rate of between R6.50 and R7.50 to the dollar and between R8.00 and R9.00 to the euro.
Inflation and interest rate expectations remain unchanged from the third quarter survey. Most of the fund managers say inflation will trend upwards over the next 12 months, but are divided on whether the repo rate will remain stable or trend upwards.
On the global front, emerging markets – in particular South Africa, Brazil and Russia – are still favoured above developing markets. None of the fund managers see value in the US and Euro-zone.
The majority predict the oil price will remain below $40 a barrel over the next 12 months. They also expect the gold price to decline from its current level of $452 to between $400 and $450 over the next 12 months.
On an equity sector level, the majority of the fund managers are bullish on financial and industrial counters, and neutral on small caps, mid caps, IT and resources counters.
The expected returns from other local asset classes see money markets and bonds returning between 5% and 10% over the next 12 months. Equities are expected to earn a return in excess of 10%.
“Since the release of the first survey, the fund managers’ predictions for equities and cash were particularly accurate, however, the performance of bonds was underestimated,” says Shaun Ruiters, Fund Analyst at SP² Advisory Service.
“Cash returns were within their expected range and, after August’s equity market run, the expected performance for equities, in excess of 10%, became a reality.”
“Resources have steadily declined, while the fund managers held a bullish to neutral view on these counters,” says Ruiters. “Their bullish views on financials and industrials panned out as the Findi index climbed by around 30% as expected.”
He says the strong level of the rand was totally unexpected. In the first survey, conducted in February 2004, the fund managers did not expect the rand to strengthen to such an extent against the US dollar or euro.
“Inflation was also expected to move upwards, but has had a continuous downward trend,” says Ruiters. “The South African Reserve Bank surprised the market when it cut rates by 50 basis points earlier this year, moving the repo rate from 8% to 7.5%.”
The six leading South African asset managers who provided their houseviews on all major economic indicators, as well as currency, equity and bond markets over the next 12 months are Coronation Fund Managers, RMB Asset Management, Old Mutual Asset Management, Stanlib Asset Management, Sanlam Investment Management and Investec Asset Management.
SP² Advisory Service is an independent research and fund advice division within SP².
