South African portfolio managers are adopting their most cautious positioning since the Covid pandemic, according to the most recent Bank of America South Africa fund manager survey.

A net 42% of managers are overweight cash in their portfolios, the survey found, having moved underweight equities. A net 37% are also underweight offshore, although this is lower than the 57% who reported being offshore last month.

South Africa strategist at Merrill Lynch, John Morris, noted that managers have now turned cash bulls, with average expectations that the asset class will return 9% over the coming 12 months. At the same time, expectations of total returns from equities over the coming year have slipped from 13% to 11%.

However, managers did report an appetite for adding to their equity holdings if conditions turned more favourable. Of those surveyed, 36% said they would ‘buy domestics on pullbacks’, and 21% would ‘buy non-resource rand hedges on pullbacks’. Only 7% reported an intention to ‘sell equities’, down from 21% last month.

Among managers surveyed, most preferred banks, healthcare and platinum stocks at the moment. The least favoured equities were gold, real estate and retailers.

Fewer managers also reported being bond bulls. The number of managers saying that local bonds are undervalued has slipped from 29% to 21%, although there is still a feeling that conditions are supportive for bond returns over the coming year. Total return expectations over the coming 12 months for 10-year bonds came in at 16%.

Significantly, a net 71% of managers surveyed expect the local economy to get weaker over the coming year. In March 2020, this number was only 54%. 

South African managers also now expect the peak of load shedding to reach stage 8 this winter. Last month, the peak was anticipated to be at stage 7.

Fears of a total grid collapse have, however, eased somewhat, with less than 10% of managers putting a ‘high’ or ‘very high’ probability on this scenario. That is down from more than 30% in March and just under 30% last month.

A net 71% of managers surveyed said that they expect inflation to be ‘slightly lower’ in 12 months’ time. With repo rate and 10-year yield forecasts largely unchanged, a net 71% of managers also believe is too early to buy rate-sensitive counters.