This is not a tactical trade. It is a structural reallocation, and it has implications for how advisers should be positioning client portfolios over the next three to five years.

"When cash levels hit record lows, the marginal buyer is not exhausted - the marginal saver becomes the next buyer."

Our House View: Moderate Positive

Prescient's quantitative asset view model rates SA Equities as Moderate Positive as at 14 May 2026, with an overall score of 0.20. The model scores four pillars: Valuations (46% weight), Economics (15%), Financial Conditions (20%), and Sentiment (19%).

Sentiment is the primary contributor (Strong Positive, 0.75), reflecting the decisive rotation of institutional cash into local equities captured in the BofA Fund Manager Survey data. Financial Conditions is the main counterweight (Moderate Negative, -0.32), driven by the changed rate environment - with the SARB now expected to hike rather than cut. Valuations have normalised to roughly neutral (0.03) after the market's strong re-rating, and Economics remains Moderate Positive (0.41), supported by improving activity data.

Four Reasons We Remain Constructive on SA Equities

1. The cash rotation is the demand story

South African fund managers' cash levels have fallen to record lows, with allocations shifting decisively into local equities. This is meaningful because cash held by institutional managers is the primary marginal buyer of the JSE. As cash exits and rotates into equities, it creates sustained demand that does not depend on offshore flows. With money market funds in South Africa still holding substantial assets, the rotation has runway to continue.

2. Emerging markets remain globally favoured

Despite the more cautious global tone in early 2026, the BofA Global Fund Manager Survey for April 2026 showed emerging markets remained the most favoured regional position globally, with a net 41% overweight. South Africa is one of the most liquid EM equity markets and benefits directly from this allocation preference. When global investors rotate towards EM, the JSE typically receives a disproportionate share of those flows due to its depth and liquidity.

3. The re-rating is underway - but not complete

South African equities traded at deep discounts to global peers for the better part of a decade. With the JSE All Share Index up over 43% in the last 12 months and reaching all-time highs above 126,000 points, that discount has narrowed materially. Valuations have normalised to near-neutral after the re-rating - which means the easy money from the valuation gap has largely been earned. The multi-year case now rests on earnings growth potential and continued sentiment-driven inflows rather than a compelling valuation gap alone.

4. Sector breadth is healthy

Unlike narrow rallies of the past which were driven by a handful of resource counters, the current SA equity strength is broad-based. Local fund managers are positioned bullishly across financials, industrials, banks, retailers and selected food producers. This breadth historically has been associated with more durable bull markets than rallies driven by a single sector or a single thematic.

Risks to the View

- Geopolitical escalation: ongoing Middle East tensions and supply disruptions through the Strait of Hormuz have pushed Brent crude above 100 dollars per barrel, introducing stagflation risk that hits emerging markets disproportionately.

- The rate environment: market pricing has shifted - the SARB is now expected to hike, not cut, with two 25bps increases pencilled in for July and August 2026. Higher rates lift the discount rate applied to local earnings, compress valuations in rate-sensitive sectors, and increase funding costs for banking and property - two of the largest weightings in the JSE. This is the primary headwind in our own quantitative house view model (Financial Conditions: Moderate Negative, -0.32). Advisers should not assume the easing tailwind that characterised 2025 will continue.

- Crowded positioning: when cash holdings reach record lows, the marginal buyer becomes scarce. Corrections in such environments can be sharper than usual, and tactical clients should expect drawdowns of 8-12% during the holding period.

- Global de-risking: a sustained rotation from global cyclicals into defensives - a theme visible in the BofA April 2026 Global Fund Manager Survey - can drag SA cyclicals (resources, banks) lower in the short term, even when the structural case is intact.

- Domestic policy: fiscal slippage, electricity supply constraints, or unexpected political volatility remain perennial SA-specific risks that can interrupt the rotation thematic. That said, the FY25/26 fiscal outcome beat expectations meaningfully (deficit ~4.3% of GDP vs 4.5% budget), which reduces this risk at the margin.

How Prescient Funds Are Positioned for This Environment

Prescient's range of South African equity solutions provides advisers with focused, well-constructed exposure to SA equity indices. Three funds are particularly relevant for clients re-engaging with the local equity market:

- Prescient Equity Fund (Core SA Equity)

Our flagship South African equity solution applies a systematic investment process to the JSE universe. The fund seeks broad exposure to the local market with a disciplined approach to portfolio construction. For clients moving from money market or income funds into pure equity exposure, this is the natural starting point.

- Prescient Core Capped Equity Fund

For clients seeking efficient, low-cost access to South African equities the Core Capped Equity solution provides broad market participation with built-in risk discipline and our proprietary portable alpha overlay. Suited to long-term core holdings within a diversified portfolio.

- Prescient Income Plus and Flexible Bond Funds (Adjacent Allocation)

As clients rotate out of money market funds, a portion of that capital is often best deployed into intermediate-duration income solutions rather than directly into equities. Our income range provides a stepping stone, offering yield enhancement over money market with materially less volatility than pure equity exposure.

Adviser Talking Points

When engaging clients on this thematic, the following framing has resonated in recent meetings:

- Clients sitting in money market funds are not earning the rotation. The South African market has materially re-rated, and continued cash exposure at this point in the cycle carries real opportunity cost.

- This is a three-to-five year story, not a one-year trade. The valuation gap closure happens over a multi-year horizon, with volatility along the way. Clients should be positioned for the journey, not the destination.

- Volatility is the entry, not the exit. Pullbacks driven by global de-risking or geopolitical noise should be viewed as opportunities to scale into local equity exposure for clients who are still underweight.

- Diversify within the SA equity allocation. The rotation is broadening across sectors. A blend of factor-based and core equity exposure provides better outcomes than a single-fund approach.

In Summary

South African equities are in the early stages of a structural re-rating, supported by a domestic cash rotation, favourable global emerging market positioning, and broad sector participation. Prescient's own quantitative house view rates SA Equities as Moderate Positive, with Sentiment the primary driver. Near-term risks remain - particularly around geopolitics, crowded positioning, and a rate environment that has shifted from tailwind to headwind - but the three-to-five-year case is the strongest we have seen in over a decade.

For advisers, the priority is identifying clients who remain materially underweight South African equities through money market exposure and constructing a phased entry strategy that captures the SA equity thematic, while managing drawdown risk in the short term.

References

Bank of America South Africa Fund Manager Survey, monthly editions through 2025-2026 (Citywire South Africa).

Bank of America Global Fund Manager Survey, April 2026 (covering 193 fund managers, USD 563bn AUM).

FTSE/JSE All Share Index (J203) performance data - Trading Economics, FTSE Russell, Bloomberg.

CNBC Africa interview series with John Morris, BofA South Africa Strategist.

BofA Research Investment Committee, Year Ahead 2026 outlook.

Prescient Investment Management, SA Equities quantitative asset view, 14 May 2026.

Disclaimer:

Prescient Investment Management (Pty) Ltd is an authorised Financial Services Provider (FSP 612). No action should be taken on the basis of this information without first seeking independent professional advice.

Please note that there are risks involved in buying or selling a financial product, and past performance of a financial product is not necessarily a guide to future performance. The value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. There is no guarantee in respect of capital or returns in a portfolio. Graphs are included for illustrative purposes only.

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