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Asset managers sceptical on economy and profits

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GLOBAL - Fund managers worldwide are getting increasingly “sceptical” about the prospects for the global economy and corporate profit growth for the first time in three years, this month’s Merrill Lynch Fund Manager Survey says.

The survey claims that for the first time since 2001, more managers think the global economy will weaken, with a net of -10% expecting stronger economies compared with nine per cent last month and 34% in April.

“Fund managers are clearly less confident that a recovery can be sustained,” said David Bowers, the firm’s chief global investment strategist.

But he added that while the euphoria - and substantial risk appetite seen earlier in the year - had disappeared, managers did not feel that a recession was around the corner. The survey found that 64% of the panel think the economy is in mid-cycle.

Only two per cent of panellists said the outlook for corporate profits worldwide would improve, compared with 47% in April – this was reflected in the outlook for corporate bonds.

The percentage of managers thinking corporate bonds would outperform government debt has fallen to –15%.

The percentage of European managers looking for a stronger economy next year is also down from 75% to 67%.

Cash balances in hedge funds have sharply risen to 8.4%, while retail and institutional funds are respectively 3.8% and 3.7%.

The widespread anxiety about inflation seems to have abated but managers still see inflation as an issue, Bowers said today.

Although 72% expect higher core inflation in a year, down from 87% in June, the perception of interest rates has not improved, with panellists forecasting long and short rates will be higher.

“People are still hawkish,” he said. Of the polled managers, 98% said the Federal Reserve will raise interest rates, with both equity and bonds managers setting a neutral rate to compared to today’s 1.25%

European managers said they expected the next move from the European Central Bank to be up, with 33% forecasting the ECB will raise rates within nine months. A “neutral” ECB interest rate was seen at 2.7%.

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