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Merrill finds fund managers’ outlook brighter

World equity markets will be higher in 12 months time, fund managers believe, buoyed up by global reflation.

Managers questioned in Merrill Lynch’s monthly Global Survey of Fund Managers said they were overweight equities, underweight bonds and positioned for cyclical recovery in 2004.

Two thirds expect single digit equity returns but one in six are looking for double-digit performance over the next 12 months. Two in three managers also expect bond yields to be higher a year from now, with one in six expecting yields to be “much higher’”.

Managers believe the next move in US interest rates will be upward and expect the Fed to raise rates in the middle of next year.

Global earnings per share (EPS) is forecast to rise slightly below 11% next year, with one in three managers looking for 15% EPS growth or higher. Managers also expect the quality of earnings to improve, with 38% predicting corporate earnings will become less volatile in 2004.

They see China as a positive influence for the global economy, and
78% say that the country will be a source of growth for the G7 economies next year.

David Bowers, chief global investment strategist at Merrill Lynch, comments: “Our panel is positioned for a classic cyclical upturn, both regionally and in terms of global sectors. They believe that sustained global recovery has not been priced into the markets, particularly into the bond market. They clearly believe that the global reflation trade is still on with a vengeance.”

However, he warns: “With everyone positioned for global reflation in 2004, there is little scope for disappointment.”

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