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Impact Investing

IPE special report May 2018

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Fund managers turn bullish – Merrill survey

GLOBAL – Merrill Lynch’s monthly survey of fund managers has found that global fund managers’ sentiment has turned bullish amid what it termed “cyclical euphoria”.

The bank’s survey found that fund managers were expecting a “classic recovery” but warned that such a recovery was not sustainable.

“It’s a classic recovery – at least that’s what people are thinking,” said David Bowers, chief global strategist.

He said that fund managers are now seeing volume growth as the main driver for earnings growth. Previously, most respondents had seen cost-cutting and the re-building of balance sheets – via topping up corporate pension plans – as key.

Now fund managers are saying that they want companies to use their cash flow for capital expenditure, Bower said.

The higher expectations for growth mean a possibility of inflation, the survey reveals. Seventy-six percent of respondents expect the next move in US interest rates to be up, with the average expectation that such a tightening will take place within nine months.

“They think that we’ve seen the last rate cut,” Bowers observed. “Just 11% think the next move is down.” He added: “People have made their minds up – this recovery is going to happen.”

He cautioned that the “organic” nature of the recovery has not yet been seen, with lower unemployment and higher ‘pricing power’ not yet filtering through.

“This is not the start of a recovery – it’s an extension of the old one,” Bowers said. The strength of the US consumer, the strength of the dollar and the size of the US trade budget deficits means that the recovery was “ultimately not sustainable”.

A net 84% of euro zone fund managers polled by Merrill Lynch expected the economy in the single currency region to srengthen over the coming year. And 34% expected inflation to rise while 94% thought the profit outlook in the region was improve in the next year.

The managers in the euro zone also saw European Central Bank policy as being too restrictive, while equities in the region were seen as undervalued.

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