South African investors have become increasingly pessimistic about expected returns on the domestic equity market, a survey showed on Thursday.
The June Sanlam Investment Management (SIM) investor confidence indicator — a monthly measure of investment professionals’ sentiment — showed investors expected returns to drop by an average 1,2% over the next three to six months.
The JSE’s top-40 index has been largely volatile. While it is up 7,3% so far this year, the index has fallen 10,2% to 28 170,67 in the past month after reaching a record high of 31 393,10 in mid-May.
The broader all-share index is up 3,4% this year but has dropped 10% in the past month.
Concerns over economic growth and rising inflation are the main worries for investors.
South Africa’s inflation hit a five-and-a-half-year high of 10,9% in May on the back of rising food and fuel prices, putting pressure on the central bank to raise rates.
The central bank has raised the repo rate by five percentage points since June 2006 to 12%.
”In this tussle between inflation and growth, the dominant theme over the last month has been rising interest-rate expectations,” said Frederick White, SIM head of research.
”The result was that investors started pricing in higher interest rates and started reducing their outlook for local growth.”
Risks to South Africa’s growth outlook include a chronic power shortage and higher interest rates strangling local demand.
Most analysts have downgraded their forecasts for this year’s growth. The National Treasury expects a 4% expansion — much lower than the average 5% of the previous four years.
The survey also showed that less than a third of respondents expected positive returns over the short term, while the fear of a market crash has risen markedly. — Reuters