Cautious Optimism: South African Fund Managers Turn to Gold as Growth Hopes Fade

South African fund managers are taking a more cautious approach to investment, shifting their portfolios toward gold and other defensive assets as confidence in the country’s economic trajectory weakens. This is according to Bank of America’s latest South Africa Fund Manager Survey, released on Wednesday.

The survey reveals that fund managers are now holding some of the highest gold positions on record, reflecting concerns over political instability, slowing reforms, and a cooling global economic environment. The shift comes as investor confidence in South Africa’s growth prospects dims, especially in light of growing tensions within the Government of National Unity (GNU).

Political Risk and Reform Concerns

According to the data, 38% of surveyed fund managers believe reforms are slowing—down from a peak concern of 56% in September 2023. The top perceived risk to South Africa’s investment outlook? A potential political shift to the left, which could further derail economic reforms.

“The sense is that growth and reform perceptions are turning negative, and recession risks are creeping up,” the BofA report notes. Where 67% of fund managers last month believed the economy would improve slightly, only 38% hold that view today. A similar percentage now expects the economy to weaken.

Gold, Banks, and Bonds in Focus

In response, fund managers are flocking to gold, banks, and bonds—assets seen as safer during economic uncertainty. Notably, South African gold prices soared to over $3,500 per ounce this week, further fueling the trend.

Meanwhile, domestic equities have lost appeal. Just 8% of fund managers are currently overweight on local equities, while none expressed interest in selling either local bonds or equities. Instead, many are looking offshore for safer returns. According to the report, South African fund managers are net offshore sellers for the first time in five years.

Sector Winners and Losers

Banks emerged as the most preferred sector, followed by software and apparel retail, though the latter has lost some of its prior momentum. Domestic cyclicals and industrials lost ground to mining stocks and other resource-based investments, with a “less bearish” sentiment now surrounding the resources sector.

Real estate, by contrast, is the least favored sector among fund managers, while life insurance appears to be holding steady in terms of investor preference.

“The current gap in favour of domestic stocks relative to rand-hedged assets has only occurred 38% of the time since 2006,” the report noted—pointing to how rare and significant this shift really is.

Corporates Still Hopeful—But Cautious

Despite the caution from fund managers, some optimism persists among South African companies. BofA’s South Africa research head Michael Jacks says many corporates are still expecting a positive earnings outlook, despite ongoing challenges such as logistics bottlenecks and uncertain consumer demand.

“Companies are still hesitant to invest due to global uncertainty,” Jacks noted, “but they are seeing some traction in energy infrastructure.”

Still, Jacks acknowledged that CFOs and banks remain wary, reflecting a general mood of guarded optimism across South Africa’s investment landscape.

As geopolitical risks like the US-China tariff tensions continue to evolve—despite recent conciliatory signals from President Donald Trump—local fund managers seem set to continue prioritizing defensive strategies until clarity returns on both domestic and global fronts.

{Source: IOL}

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