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Global economy is set to deteriorate in next 12-months: Survey
Investors see turbulent times ahead, according to BofA Merrill Lynch.
July 14, 2010 2:38 by Rasha Reslan
Investors see turbulent times for businesses as the global economy is likely to deteriorate in next 12 months, according to the BofA Merrill Lynch Survey of Fund Managers for July.
“Investors have turned bearish in their outlook for the global economy and corporate earnings,” BofA Merrill Lynch in a statement said while releasing the details of its Fund Manager Survey for July.
The findings of the survey suggested that the bear market sentiment is back and investors move out of US and into emerging markets.
A total of 202 fund managers, managing a total of $530 billion, participated in the global survey from July 1 to July 8. A total of 170 managers, managing $393 billion, participated in the regional surveys.
The survey shows a net 12 percent of respondents predicting the global economy will deteriorate in the coming 12 months, the first negative forecast since February 2009. This represents a big turnaround from June when a net 24 percent forecast the economy to strengthen.
A net four percent of the panel expects corporate profits to worsen in the coming year, also the first negative outlook in more than a year. It compares with a net 28 percent forecasting earnings growth just last month. A net 1 percent says that profit margins will fall in the coming year, compared with a net 31 percent predicting improved margins in May.
Risk appetite has dipped with investors moving into cash and reducing exposure to cyclical stocks. Cash now comprises 4.4 percent of an average portfolio, up from 4.1 percent in May. A net 39 percent of the panel is taking lower than normal risk; more than double the proportion in May.
“July’s survey echoes the sentiment that investors expressed during the recession in early 2009,” said Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research.
“Growth and profit expectations have double-dipped. Should upcoming data fail to confirm a double-dip, risk assets will have a much better third quarter,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.
The survey found that investors were more concerned about the outlook for US equities than at any point since November 2006, with a net 14 percent of the panel saying it is the region they would most like to underweight.
In July a net 14 percent said the US was the region they most wanted to overweight. Global asset allocators have already reduced exposure to the region, with net seven percent of panel overweight US equities, down from a net 20 percent in June.
Inflation concerns have eased as sharply as growth concerns have appeared. A net 12 percent of investors predict inflation to fall in the coming year, a turnaround from June when a net 12 percent were forecasting higher inflation.