Macro improving: more upbeat, but worried
Managers have turned bearish cash for the first time since 2011 and have turned more
bullish on equities and bonds. They are reducing their equity underweights, adding to
risk, and reducing their cash overweight. Macro forecasts held steady with USDZAR at
13.57 in +12M; 10Y at 8.68%. A lower 42% expect SA to lose ‘IG’ (92%, Apr’16). Value is
preferred: banks, general miners and oil. Disliked: construction, real estate and gold.
5 signs that managers are Bullish equities
1. A net 42% think the equity market will be up in six months; 2. They are increasingly
comfortable with valuations (42% say equities are overvalued vs. 60% last month); 3.
Expected +12M equity returns are at their highest since Apr’13 (7.2%); 4. Expected EPS
growth is at its highest since Apr’12 (12%); 5. Our ‘Bull-o-meter’ (aggregate of FMS
questions to gauge survey bullishness) turned positive for the first time since May’13.
Lukewarm AA conviction: Cash level remain high at 17%
Asset Allocation (AA): bullish equities and bonds, bearish cash and commodities, mild
offshore OW (only net 8% OW vs. peak of 70% in Jun’15). Cash levels remain stubbornly
high at 17%, but are off the Jun’16 peak (20%). Key risks to max bullishness and lower
cash remain concerns on ‘a further de-rating’ and ‘policy shifts to the left’ (survey high).
Domestic economic optimism a record high; no repo cut H1
100% of managers surveyed expect the economy to improve and inflation to fall over
the next 12 months. This is the 1st instance of this combination in the history of the
survey (since ’98) and an almost mirror image of Jan’16 (banks outperformed retail by
43% since then). A net 33% of managers think monetary policy is ‘too restrictive’ and
78% expect a rate cut (56% say Q3’17). ‘Budget 2017’ expectations are focused on
higher personal income tax rates and tighter restrictions on govt spend/corruption.