Locals dump stocks, foreigners buy

Johannesburg - South African asset managers have been steadily selling out of equities in favour of cash, bonds and international assets for the past five quarters.

That's according to a recent report from research house JP Morgan Cazenove, which shows that 10 out of the 11 domestic fund managers surveyed had made this switchover the first quarter of 2010.

"Clearly domestic investors remain very sceptical about the longevity of both the global and domestic economic recovery," the firm said in its research report.

This is in contrast to investment banking group JP Morgan's recent call that investors should be overweight South African assets.

While local asset managers have been wary of domestic equities, this has not deterred international investors.

According to JSE data, foreigners were the net buyers of R1.3bn worth of South African shares in the last week. So far this year, net foreign buying has been about R12.5bn.

According to the report, over the last quarter Allan Gray cut domestic equity exposure by 3.7%, with a cash weighting of 22%. Investec cut by 3.8% while upping its offshore exposure by 3.6%, while Stanlib and Cadiz reduced their domestic equity holdings by 3.1% and 3.3% respectively.

"While we have no special ability to predict the future, we have a relatively high conviction that opportunities to invest in equities will be better in future than they are right now," said portfolio manager Delphine Govender of Allan Gray.

Allan Gray bases this assessment on a couple of factors including the speed at which the market bounced back, the dividend and price-to-earnings yields of shares relative to historical averages.

"Our current assessment is that the risk of loss for the market as a whole is higher than average," concluded Govender.

Investment banking group Merrill Lynch suggested that investors could take some clues from the dividend yields of international stocks versus their local counterparts.

They point out that the highest average (historical) dividend yields in the world are in Australia (3.7%), the UK (3.4%) and Europe (3.4%). In contrast, the average dividend yield of the JSE’s All-share index is about 2%, indicating that local stocks are potentially expensive.

- Fin24.com