Can you believe it? The JSE All Share Index is on track for its biggest first-half advance – up +14% – since 2006. In dollar terms, it’s up 21%, outperforming both the Emerging Markets and the S&P 500. And there could be more gains to come.
Well, that’s according to a recent fund manager survey from Bank of America.
At least 11% upside over the next 12 months!
Now 70% of fund managers are bullish on SA stocks – with a target price of 107,000 over the next 12 months. That’s around 11% upside from today’s prices.
The biggest winners are PGMs and gold miners as Bank of America sees gold rallying to $4,000/oz driven by lower US interest rates and a weaker US dollar.
Already, Bloomberg’s gauge of the greenback recently dropped to the lowest level in three years – and it could further fall if rate cuts come into play. In fact, futures markets are now pricing in 4 to 5 rate cuts over the next 12 months.
Not only is that bullish for gold and PGMs, but it’s also very bullish for stocks in general.
Small cap gold miner Pan Af has been one of my top gold plays in Red Hot Penny Shares. Even after rallying +80% over the past year, Pan Af still trades on a forward PE of +6 compared to the larger JSE gold miners’ forward PE of +8.
Aside from gold and PGMs, fund managers also favour JSE banks, retailers, and software stocks.
Some of my favourite plays in these sectors are Lewis, Investec and IOCO.
Get ready for a new inflation target…
In an interview with Bloomberg TV on Tuesday, SARB Governor Lesetja Kganyago confirmed the review of the SA inflation target is close to completion. And the Rand rallied on this news to R17.59/$.
I already spoke about this in my recent issue of Red Hot Penny Shares. Here’s why it could be beneficial for SA Inc.
For one, reducing the target to 3% would mean SARB could lower inflation expectations and ultimately reduce the cost of borrowing saving government hundreds of millions on debt-service costs. Lower borrowing costs would also alleviate debt-ridden South Africans and corporates.
What’s more, a lower inflation target will imply real rates remain higher than would otherwise have been the case.
Higher real rates will likely attract foreign investors into SA bonds to generate attractive income. More money flowing into SA will strengthen the rand and keep “import inflation” in check. And this could also help lower the cost of living for SAs and put more money back into our pockets.
Sure, there may be some pain in the short term. However, over the long term, a more stable price environment encourages investment, real wage growth, and economic stability.
We’ll probably hear more about the results of the review when policymakers deliver their next interest rate decision on 31 July.
Moreover, we may even get another 0.25% rate cut as our inflation remains at its lowest level in five years. Not only does this benefit cash-strapped consumers, but also stocks with high debt levels. Less finance costs means more profits!
In short – there are several catalysts on the horizon that can drive SA stocks higher. Don’t miss out! Make sure you’re reading Red Hot Penny Shares to discover the best JSE small cap investment opportunities.
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