Fund Managers Less Certain About Growth

Tue Jul 13, 2004
By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Investors across the world are scaling back their expectations for global economic growth and may be becoming less worried about inflation, Merrill Lynch's monthly fund manager survey showed on Tuesday.

The investment bank said its July sounding of some 275 fund managers, with a total of $852 billion in assets, showed a growing number expect global growth to ease over 12 months, although a majority still expect it to be the same or stronger.

At the same time, the poll showed that while more than three-quarters of respondents are expecting higher inflation in a year's time, the number has decreased and may have peaked.

The poll showed 44 percent of respondents expecting global growth to be lower in a year's time, compared with 38 percent in June. Merrill said it was the first time since 2001 that the "weaker" number had outweighed those expecting stronger growth.

Despite this, more than one-in-three of respondents were expecting stronger growth, with the rest seeing it remaining at its current clip.

On average, the fund managers are expecting nominal GDP in Group of Seven industrial nations to grow at 4.5 percent over the next 12 months, down from 4.6 percent in the June survey. "We are not talking recession here, but we are talking a softening of growth expectations," said David Bowers, Merrill's chief global investment strategist, presenting the poll.

He said part of the reason may be due to a more pessimistic view of corporate profits growth.

The survey showed fund managers more or less equally split between those who expect global corporate profits to improve over 12 months and those expecting them to deteriorate.

Again, however, the number of respondents taking a negative view grew slightly, to 40 percent from 36 percent in June.

Forecasts for global earnings-per-share growth dropped to 8.1 percent from 9.0 percent and contrast with a peak of nearly 12 percent earlier in the year.

EQUITIES AND BONDS

Despite the more pessimistic tone, the poll showed fund managers maintaining a relatively bullish stance toward equities and a negative view of bonds.
The average recommended weighting for equities in a global balanced fund was unchanged at 53 percent. Similarly, 50 percent of respondent said they were "overweight" equities, down from 53 percent in June.

By contrast, only 10 percent of respondents said they were overweight bonds, up from 5 percent, with 65 percent, up from 63 percent, saying they were underweight.

Some 36 percent were overweight cash, underlining investor uncertainty in the current climate.

The poll also showed fund managers continuing to expect government bonds to outperform corporate debt.

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