BofA Merrill Lynch fund manager survey explained

Global fund managers are showing a notable shift towards equities as they embrace a 'Goldilocks' scenario of above-trend growth and below-trend inflation, according to the latest Global & SA Fund Manager Surveys conducted by Merrill Lynch. John Morris, Merrill Lynch SA strategist, discussed the key findings from the survey in a recent CNBC Africa interview. The survey indicates a record number of managers expressing optimism, indicating a general consensus among investors towards a risk-on approach and increased market activity. Initially met with skepticism earlier this year, the view of a market 'melt up' has now gained widespread acceptance among investors. The sentiment has shifted from concerns of a correction to a bullish outlook on market performance. The survey highlights a strong preference for equities, with a significant 85% of managers considering bonds as expensive. Only 3% anticipate lower bond yields over the next 12 months, signaling a general expectation of rising bond yields. As a result, investors are favoring more cyclical assets such as equities over bonds. This trend is reflected in the rotation of investments from the US market to regions like Europe, emerging markets, Japan, and global banks. The survey also reveals a notable overweight position in the banking sector, with managers expecting rising bond yields to benefit bank profits. In the South African context, fund managers are exercising caution as they navigate uncertainties surrounding the upcoming ANC elective conference. Elevated cash levels, a defensive asset allocation strategy, and a preference for rain hedges reflect a conservative approach in the local market. Concerns about the conference outcome have led to a defensive positioning, with managers prioritizing cash and bonds over equities. The potential for a reform outcome is a key consideration for investors, with implications for domestic investments. While there is anticipation for potential opportunities in the domestic space, managers remain cautious and prepared for various scenarios. The survey indicates a high level of pessimism regarding policy shifts and credit ratings in South Africa, with a significant proportion of respondents forecasting a downgrade of local bonds by the end of next year. Despite local concerns, global market conditions remain a key factor influencing investment decisions, underscoring the importance of considering both local and international dynamics. The survey reflects a nuanced outlook among fund managers, balancing optimism for market growth with a prudent approach in uncertain times.