How SA fund managers are viewing the markets

South African fund managers are showing increased optimism towards bonds and commodities while being less enthusiastic about equities and cash, according to a recent survey by Bank of America Merrill Lynch. The survey, dubbed 'dash from cash,' indicates that fund managers in South Africa are more bullish on bonds and commodities than equities, with the most bearish sentiment towards cash since 2003. This shift in sentiment comes as the repo rate has fallen by 275 basis points, leading to low returns on cash investments. In a recent interview with CNBC Africa, John Morris, South Africa Strategist at Merrill Lynch, highlighted the key findings of the survey. He noted that nearly 80% of fund managers see more buying opportunities than selling opportunities in the equity markets, a level not seen in many years. Historically, such high buying sentiment has been followed by strong performance in equities over the next 12 months. While equity markets are attracting interest, fund managers are also keeping an eye on domestic opportunities, particularly in defensive sectors like food retailers. The survey indicates a preference for sectors such as platinum and banking, while sectors like real estate are less favored. Managers are cautious but warming up to the idea of overweighting domestic investments, with a significant swing in sentiment from the previous month. Morris suggested that the global growth value debate, coupled with changes in US monetary policy, could impact the investment views of local managers in the coming months. He highlighted the potential for increased volatility as a result of the US elections and the overall outlook for the US dollar. A stronger dollar post-election could lead to market volatility, while a weaker dollar could benefit emerging markets, commodities, and domestic stocks. Looking ahead, Morris anticipates a possible earnings recovery in South Africa next year, which could draw more interest to the domestic side of the market. While earnings may not fully recover to pre-COVID levels, a gradual improvement in the economic environment could drive investor sentiment towards local opportunities. Overall, the survey reflects a shifting landscape in South African fund managers' investment strategies, with a greater focus on bonds, commodities, and domestic sectors, while maintaining a cautious approach amidst global economic uncertainties.