The Merrill Lynch survey of South African fund managers in June saw fund managers forecasting a stronger rand in 12 months time than they did in the May survey.
The 12-month consensus forecast on the rand is now R7,10 to the dollar compared with R7,64 in the May survey, while the range was from R6,20 to R7,50 compared with May’s range of R7,30 to R8. The rand is currently trading at R6,39 per dollar.
In the April survey, the 12-month consensus forecast was R7,03 per US dollar with a range of R6,70 to R7,35.
The April median forecast was the strongest rand forecast since July 2000, when the spot rand exchange rate was a monthly average of R6,88 per dollar.
In April last year, the range of the 12-month forecasts was R7,15 to R8,75 per dollar with a consensus forecast of R8,48.
Fund managers have increasingly become more bullish on the rand over 12 months, with a median forecast for March 2005 of R7,27 per US dollar compared with February’s forecast of R7,56 for February 2005 and the January forecast of R7,69 per dollar.
The range in the March survey was from R6,60 to R7,70 compared with February’s range of R6,91 to R7,95 and the January range of R6,65 to R8,40. December 2003 saw a median forecast of R7,18 per dollar in December 2004 compared with the November forecast of R7,55 in November 2004.
In the November 2002 survey, the median forecast was still above R10 per dollar at R10,36, which was far better than the median of R10,90 in the October 2002 survey and R11,27 in the April 2002 survey. The monthly average for November
2003 was in fact only R6,74.
This is consistent with the survey history since January 1998 when fund managers have generally expected the rand to be weaker in 12 months than the actual result.
The exception to this rule was in 2001, when the 12-month forecast was stronger than the actual.
In December 2001, the rand reached a record worst level of R13,86 per dollar, R20,0866 per pound sterling and R12,4790 per euro. It finished 2002 at R8,59 per dollar, as the rand was the best performing currency against the US dollar in 2002.
On December 3, 2003, the rand reached its best level since January 2000 when it touched R6,0910 per dollar.
Despite the more bullish outlook on the rand, two-thirds (60% in the May survey) expect South African interest rates to rise by 100 basis points over the next 12 months. Almost a quarter (23%) expect the first increase in the repo rate to come next quarter compared with only 7% in the May survey.
Inflation fears have eased back to their April level of 73% after rising to 87% expecting higher inflation in 12 months’ time in the May survey.
The forecast for the 12-month all share index earnings per share edged up to 17% in June from May’s 15% and 14% in April, 13% in March, 11% in the February 2004 survey and 6,7% in the December 2003 survey. The survey-record low forecast of 3,7% was set in July 2003.
Global fund managers have turned bearish on the global economy, with only a net 9% thinking the global economy will strengthen over the next 12 months compared with a net 74% in the January survey.
Optimism on the South African economy remains strong, with a net 93% of South African fund managers expecting the local economy to improve over the same time frame, which is unchanged from the May and April surveys.
The easing in inflation fears has seen the 12-month forecast for the repo rate move back to 9% in June from 9,09% in May. The 10-year bond yield is forecast to rise to 10,64% from 10,25% in the may survey and 9,79% in the April survey
In the June 2004 survey, the percentage allocated to offshore assets varied from 8% to 19% with an average of 12,5% compared with May’s 13,2%, April’s 11,8%, March’s 12,4%, and January and February’s 12,6%. The record high of 18,5% was set in April 2002.
In June 2004, fund managers reduced their exposure to offshore bonds to 30,4% of the total offshore holdings from 34,8% in May, 31,4% in April and 25,8% in March. This compared with a prior recent low of 27,5% set in November 2003 and a recent high of 40,3% set in August 2003.
The total South African fund managers’ asset allocation into domestic equities edged higher to 61,8% from May’s 61,6%, April’s 62,8% and March’s 63%. This compared with February’s 61,7%, January’s 61,9%, December’s 59,8%, and November’s 62,7% after it had remained at 56,3% for three consecutive months.
The exposure to domestic bonds was reduced to 15,7% from May’s 16,6%, April’s 15,1%, March’s 15,4%, February’s 15,8%, January’s 16,9%, December’s 17,5% and November’s 17%.
Fund managers raised their exposure to property to 1,6% from 1,2%, while cash was increased to 8,3% from 7,4%. Cash remained below May 2003’s 10,1%. – I-Net Bridge