What is fund managers’ sentiment like ahead of the ANC’s elective conference?

Around a third of South African fund managers are bullish on cash going into the ANC’s elective conference in December, with cash levels currently sitting at 15% of assets under management, Bank of America Merrill Lynch’s Fund Manager Survey for October has revealed.

A higher 67% of the 15 local fund managers surveyed remain overweight on cash, while 47% underweight on equities and 53% underweight on bonds, Merrill Lynch investment strategist John Morris told journalists last week.

Managers are near record overweight on resources (27%), but are looking to lighten.

The rand-hedged positioning suggests that local fund managers are in a holding pattern until the outcome of the ANC elective conference, with most hoping for policy reform and a leadership reshuffle thereafter. 

Around 60% expect the economy to “get a little stronger” over the next 12 months, while 33% expect a modest increase in overall inflation over the coming year.

Only 7% of managers believe that local equities will be up in six months – down from 38% in September – with the greatest threat to SA equity performance considered “policy shifts to the left” following the elective conference.

Morris believes international investors have also adopted a wait-and-see approach, with foreign buying focused in resources – particularly gold – food producers, drug retailers and local banks.

“Foreigners continue to buy banks like Capitec, because there is still a strong earnings growth story,” he said.

Internationally, the bulk of the 207 global fund managers polled point to a “Goldilocks” macroeconomic scenario, with above-trend growth and below-trend inflation.

Just 3% of investors say that global bond yields will be lower in the next twelve months, with 82% expecting bond yields to rise.

International cash levels came down from the 2017 peak of 5.8% to 4.7% in October – its lowest in several years.

“Everyone is into the Goldilocks frame of mind in terms of the global markets,” Morris explained. “Everyone wants to be in equities and want risk on, but managers haven't fully committed their cash, because they’re not sure how much longer the bull market will last.

Generally, the returns are only seen at the tail end of a bull market,” he commented.