Until it sees signs of political reforms, Sygnia plans to remain underweight South Africa equities relative to global.
Until it sees signs of political reforms, Sygnia plans to remain underweight South Africa equities relative to global.
Sygnia Asset Management is underweight South Africa equities by 2% relative to its strategic asset allocation across its range of more than 100 balanced funds. The company has over R250bn in assets under management and administration.
‘What happened over the past six months is that resources performed very well,’ Kyle Hulett (pictured), Sygnia’s head of investments said during a webinar. ‘Being underweight South African equities has worked very well over the long term, but over the past six months, resources have pushed South African equities to be one of the best-performing markets in the world.
‘We think that is going to peter out over the next six months. We are not changing our view about being underweight South Africa because of resources.’
Sygnia believes that even though local equities are ‘very cheap’, they will remain so.
‘Until I see signs of reforms, I will not go overweight South Africa equities relative to global equities,’ Hulett said. ‘I would rather hide in the global space where Covid-19 vaccines are getting rolled out, reforms in China are taking place, and tech growth in the US is still strong.’
Hulett said that in the developed world vaccines were helping bring Covid-19 under control. South Africa was, however, behind in its Covid-19 vaccine rollout.
‘The main reason Sygnia is underweight is that we are concerned about the lack of local reforms. Without reforms, we will not see investor confidence come back in South Africa.’
‘If you go through the State of the Nation Address and the Budget Speech, all the promised reforms – and the list of reforms is exhausting – need implementing. We keep missing deadlines,’ Hulett said.
Dealing with the power system, particularly Eskom, was the most significant reform that the government needed to address, he added.
Other vital reforms included those needed to boost the tourism sector and the issuing of extra telecommunications spectrum. Hulett also said that the government needed to improve its fight against corruption.
After a strong commodity rally has boosted local equities, Sygnia also sees the prices of major commodities like copper, iron ore and oil softening later this year as Chinese demand slows.
‘I’m expecting demand from China to come off, and supply increases or supply to stay the same,’ Hulett said in an interview following the webinar. ‘Then the prices should soften as a whole – probably mostly copper, iron ore, and oil. Platinum supply and demand dynamics are a little different.’
China is the world’s biggest consumer of resources, and its economic growth was slowing down, said Hulett.
‘That means demand will reduce over the next six months. Towards the end of the year, we think prices will come off. China’s credit impulse is already slowing. That has been slowing for two months and leads the Chinese economy to slow within six to nine months,’ he said. ‘I’m not picking the top, but certainly, we think that demand from China has turned, and that should lead to a commodity demand reducing and prices coming off.’