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Equity strategists are increasingly advocating that 2021 will be a good year for South African equities as global investors respond to the anticipated widespread availability of a coronavirus vaccine with an increased appetite for riskier assets.
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Local money manager Momentum Investments was the last to add its voice on Tuesday, suggesting that “the stars are finally lining up” for the South African equity market. According to the Pretoria-based firm, investors will exit safe haven assets like bonds, cash and gold, and increase their holdings in stocks, with non-US stocks particularly in favor.
Momentum’s upbeat view is similar to that expressed by JPMorgan Chase & Co., which moved to overweight South African stocks in late November. Earlier Tuesday, John Morris of Bank of America Global Research said the country had earned its first overweight rating on the bank in five years. He spoke shortly after figures showed that Africa’s most industrialized economy expanded by 66.1% annualized in the third quarter, emerging from the longest recession in 28 years.
“He’s entering a recovery with better earnings,” said Morris, South African investment strategist at BofA, during a virtual briefing. That will lead to upward revisions to earnings, which are “very value-friendly in emerging markets.” BofA sees 35% upside potential over the next 12 months for South African stocks, helped by a recovery in value trade.
BofA is bullish on South Africa in the first half of 2021, but will reassess in the latter part of the year for what could be a more difficult period with increased volatility given the country’s rising costs of debt.
South Africa’s benchmark stock index gained as much as 0.9% on Wednesday, hitting the highest level since August 2018.
© 2020 Bloomberg LP
