South African fund managers expect the delayed budget statement to meet expectations regarding policy reforms as they look forward to at least one repo cut this year while they forecast the rand to hit R17.60 to the dollar.

Fund managers surveyed for the Bank of America South Africa Fund Manager Survey for February, 69% said they “expect the economy to get a little stronger” while 62% said they “expect inflation (to be) slightly” higher for this year.

Fewer managers see the next rate cut by the South African Reserve Bank in the second quarter of the current year. However, the surveyed managers' repo forecast over the next 12 months rose in February to 7.19% compared to 7.18% previously.

They have also forecast SA’s R2035 bond yields to ease to 10.08%.

Regarding sentiment on economic policy reforms, “a net 38% of fund managers expect policy reforms, while the upcoming Budget is anticipated to meet” expectations.

This follows the postponement of the 2025 budget policy statement last week that would have introduced a hike in the Value Added Tax. After government of national unity partners failed to agree on the budget framework, the fiscal policy framework for the current year was moved to March 12.

“Alower net 38% see 'reform' accelerating post elections… the peak reading was 56% in September 2024. A bullish turn for South Africa on a multi-year view is being questioned by local and global missteps,” noted the fund managers report for February released on Tuesday.

Nonetheless, 38% of managers surveyed said South African bonds are undervalued. This is the lowest reading for SA bonds in a year.

Similarly, a net 54% of surveyed respondents said SA equities are undervalued amid bullish but weakening sentiment for banks and apparel retailers. More managers said they were inclined to add to non-resource SA rand hedges while “no manager is adding to domestics” or resources

“Managers sold bonds and lightened cash in favour of local equities especially financials and industrials (and) sold offshore property in favour of equities and cash. Offshore investments well off regulatory 45% limit at 33%,” said the report.

Sentiment in retailers and food producers was losing traction. This comes after recent access to retirement savings and December holiday spending.

Telecom, real estate and life insurance emerged as least preferred, with software and beverages as well as tobacco experiencing the largest positive gains. The retail and food producers, personal goods and platinum recorded the largest fall.

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