July 5 (Bloomberg) -- South African equities may rise as much as 15 percent this year as the global economy starts to improve and concern eases that China may curb growth to control inflation, according to Investec Asset Management.
The Cape Town-based money manager has reduced the cash element and raised the equities portion in its Discovery Balanced Fund to 70 percent from a “neutral” weighting of 65 percent six weeks ago, Chris Freund, an Investec Asset Management portfolio manager, told reporters in Johannesburg today. African securities account for 76 percent of the fund.
The MSCI Emerging Markets Index of stocks has gained 4.1 percent since Greece’s parliament on June 29 approved an economic austerity plan, key to avoiding a default, and after U.S. manufacturing unexpectedly expanded at a faster pace in June. Inflationary pressures in China are under control, Premier Wen Jiabao said in comments posted on the government’s website today. South Africa’s FTSE/JSE Africa All Share Index rose for an eighth day in the longest winning streak since November 2009.
“Markets were looking for an excuse to bounce and did so last week on the back of the Greek parliament voting in favor of further austerity measures,” Freund said. “People are so defensively positioned that if we start to get some strong data consistently then the market is going to rally quite hard. I personally think we are good for another 10 to 15 percent this year from this point.”
The South African benchmark equity index closed at 32,254.24 as of 5:30 p.m. in Johannesburg. The gauge is up 0.4 percent for 2011 and is 2.5 percent lower than its record-high close of 33,094.06 set on Feb. 14.
The Discovery Balanced Fund has gained 2.5 percent so far in 2011 and 17 percent from a year ago, ranking in the 84th and 91st percentiles, respectively, according to data compiled by Bloomberg News.
While a number of risks remain, including the U.S. housing market and slower Chinese and European growth, equity valuations globally are not “overcooked,” said Freund, who manages 25 billion rand ($3.7 billion) in pension fund portfolios and mutual funds, including the Discovery Balanced Fund.
Freund is also raising the portion of South African bond holdings. He didn’t give further details. His biggest equity holdings in South Africa include Sasol Ltd., Compagnie Financiere Richemont SA, BHP Billiton Plc, MTN Group Ltd., SABMiller Plc, FirstRand Ltd., Mondi Plc, Anglo American Plc, Exxaro Resources Ltd. and Imperial Holdings Ltd.
--Editors: John Kohut, Gavin Serkin.
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