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Strategies & Market Trends : Moomin Valley (formerly Troll-free Zone) -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (1490)	8/20/2006 5:33:34 PM
From: RealMuLan	Respond to of 2852

Merrill Lynch's Survey of Fund Managers for August finds view that the global economy will deteriorate over the next 12 months has now become near-consensus By Finfacts Team Aug 20, 2006, 19:15 David Bowers Pessimism about global growth, concern about the strength of corporate earnings and this month's pause in US interest rate hikes are prompting fund managers to reassess their longstanding negative view on bonds, according to Merrill Lynch's Survey of Fund Managers for August. Only a net 22 percent of fund managers perceive global bond markets to be overvalued, down from 48 percent who took this view as recently as May. Moreover, asset allocators have begun to reduce their underweight stance on bonds for the first time in three years. A net 46 percent of this panel said they are underweight bonds, versus 65 percent in June. At the same time, investors continue to exhibit a high level of risk aversion and a net 33 percent of asset allocators are overweight cash - an all-time high. "The big call this autumn is shaping up to be: Will this liquidity be directed back into equities or could it head for the bond market instead?" said David Bowers on behalf of Merrill Lynch. "How investors respond to this question may boil down to whether they expect the Fed to be more concerned about the risk of inflation or the risk of slower growth." Economic Gloom, Corporate Profits Uncertain The belief that the global economy will deteriorate over the next 12 months has now become near-consensus, with a net 70 percent expecting it to weaken. The vast majority don't expect this to translate into a recession, but two-thirds of the panel describe the economy as being in a late-cycle phase. This view manifests itself in concerns about corporate profits. A net 52 percent of fund managers expect profits to deteriorate over the next 12 months, up from 34 percent in June, and the percentage who expect earnings per share growth to be 10 percent or more over the coming year has fallen to 29 percent from 39 percent in June. More than half of respondents (53 percent) expect corporate operating margins to weaken over the next year, up from 40 percent who expressed this view in June. Risk aversion remains high for the third month in a row, with a net 54 percent looking for equity market volatility to rise from current levels. A net 43 percent of fund managers believe it likely that world stock markets will be lower in six months' time. Survey Highlights Fed's Dilemma Whether corporate earnings concerns will prompt asset allocators to return to bonds hinges on how Fed Chairman Ben Bernanke perceives the relative risks of higher inflation and weaker economic growth. In the first of three special questions this month, asset allocators were asked whether the Fed should be more concerned about the risk of higher inflation, or lower economic growth. The panel was pretty evenly split. Slightly more (33 percent) declare themselves more concerned with economic growth than inflation (27 percent) and the 37 percent balance reckon the Fed should be equally concerned about both. Merrill Lynch's view is that economic concerns will increasingly outweigh inflationary worries. Merrill Lynch's chief North American economist, David Rosenberg, expects the Fed to keep rates on hold until early next year, when he anticipates a rate cut. Asked whether Fed funds are higher than they would have been had Alan Greenspan still been chairman, most (57 percent) said no, but 24 percent agreed with the statement. Participants were also asked whether or not they expected the Fed to adopt an explicit inflation target. Nearly half of respondents (47 percent) are against such a development, though a sizeable minority (37 percent) would welcome it. "This response shows it was a mistake to assume that a new face at the Fed would make no difference," said Mr. Rosenberg. "There's no question that Bernanke has had more of a challenge communicating than Greenspan. It's not just the Chairman who has departed, but the other resignations that followed. This year, we've seen the disappearance of 53 years-worth of policy-making experience," he said. A total of 209 fund managers participated in the global survey from August 4 to August 10, managing a total of U.S. $637 billion. A total of 161 managers participated in the regional surveys, managing U.S. $428 billion. The survey was conducted with the help of market research company Taylor Nelson Sofres (TNS). Through its international network in more than 50 countries, Taylor Nelson Sofres provides market information services in over 80 countries to national and multinational organizations. It is ranked as the fourth-largest market information group in the world. Survey results were analysed by David Bowers, who is joint managing director of Absolute Strategy Research Ltd, a financial services consultancy. finfacts.com