GLOBAL - Investors expect growth will become increasingly scarce, according to the latest Merrill Lynch fund manager survey.
Even though stock markets are recovering, market fundamentals are weaker than before the recent credit crunch, according to the survey, in which a total of 209 fund managers participated between 5 -11 October.
Nevertheless, the study noted that global equity prices were 3% higher than in July. "[This is a] result that vindicates investors' decision, expressed in August's and September's surveys, to stick with equities despite market turbulence," according to David Bowers, independent adviser for Merrill Lynch.
At the same time, the net balance of respondents who expect global growth to decline increased to 55% in October from 5% in July. The net balance expecting a worsening of corporate profits (44%) improved from September - but is much higher than in July (12%).
"Investors are preparing for a new environment in which earnings growth will become increasingly scarce," said Bowers.
He added: "When it comes to investment style respondents are expressing a marked preference for growth over value. The trouble is that investors can identify only three sectors with strong growth characteristics; technology, materials and industrials."
Merrill Lynch has found inflation concerns resurfaced in October but remain below levels found three months ago.
"The net balance of respondents expecting core inflation to rise over the next 12 months leapt to 33% in October from 4% in September. These concerns have prompted a bearish outlook for long term interest rates - the net balance expecting higher bond yields rose from to 43% from 26% in September," the firm said.
Asset allocators remain overweight equities, however. "Even if macro economic fundamentals have been slower to respond to easing by the Fed, equities remain the asset class of choice," said Karen Olney, chief European equity strategist.
She added: "We still see an excess of liquidity and the market has yet to re-rate the value of equities the way it has re-rated other asset classes during the credit bubble."
Emerging markets have been the biggest regional beneficiary of the rate cuts and market rally, the survey has found.