Easing recession fears boost South African assets
Mining company stocks see the biggest gains
Written by Ziad Abdel Fattah:
A recent survey of fund managers revealed a marked improvement in investor appetite for South African assets, driven by easing stagflation fears and lower price pressures, which has boosted the market’s attractiveness to new investment flows.
93% see buying opportunities
A survey conducted by Bank of America Global Research between June 5 and 11, involving 14 institutional investors, showed that 93% of participants see buying opportunities that outweigh selling opportunities, the highest percentage recorded since 2009, in a clear indication of a recovery in market confidence.
Mining company stocks see the biggest gains
Mining stocks have benefited the most from this shift, with fund managers raising their exposure to them to a five-year high, taking advantage of improved economic prospects and declining inflation risks.
Oil prices fell by approximately 29%
The improvement was supported by a decline in oil prices of about 29% during June compared to their peak in May, which contributed to easing inflationary pressures significantly and led to a shift in investor expectations, after the majority had expected inflation to rise in the previous month.
Despite the decline in inflation rates, all survey participants expect the South African Reserve Bank to raise interest rates during the third quarter of the year, as part of its policy to counter any potential inflationary pressures.
In the same vein, a report issued by Deutsche Bank indicated the possibility of continued monetary policy tightening, especially if oil prices rebound, suggesting a potential interest rate hike of approximately 50 basis points. However, the report did not rule out the possibility that the central bank might temporarily hold interest rates steady at its upcoming meeting in July, should inflation expectations stabilize.
10-year government bonds are attractive
Regarding debt instruments, 10-year government bonds remain relatively attractive, with approximately 29% fund managers viewing them as undervalued, thus enhancing investment opportunities.
Deutsche Bank predicts an increase in the value of the South African rand.
Positive expectations for the local currency were also strengthened, with Deutsche Bank predicting an increase in the value of the South African rand, forecasting that the dollar exchange rate would reach about 16 rands by the end of 2026, supported by a strong trade balance, tight monetary policy, and relative political stability within the country.
The shift in investor sentiment reflects a cautious optimism about the South African economy, given the ongoing global challenges, but at the same time it points to promising opportunities that could drive further investment flows in the coming period.
