Global investors see less growth, cut risk

Tue Aug 17, 2004
By Jeremy Gaunt, European Investment Correspondent

LONDON, Aug 17 (Reuters) - Leading investors are becoming more pessimistic about the global economy and significantly less willing to take risks with their money, a Merrill Lynch monthly poll showed on Tuesday.

The investment bank's August survey of 293 fund managers across the world showed investors steering money into safe haven cash, cutting their stock holdings and remaining very negative about bonds.

"People have become more risk averse. Cash levels have risen," said David Bowers, Merrill's chief global investment strategist. "People have become more sceptical about sustained synchronised global growth."

The poll was taken between August 6-12 after the United States reported surprisingly weak levels of job creation for July on August 5 and as the U.S. Federal Reserve raised interest rates on August 10. Oil prices also climbed in the period.

The combination of factors, along with other poor U.S. economic data, has hit global equity markets for much of the third quarter. Merrill's findings also dovetail with other surveys, including Reuters monthly asset allocation polls.

A majority of Merrill respondents, 53 percent, said they now expect the global economy to weaken over the next 12 months, an increase from 44 percent in July and 38 percent in June.

A third expect the economy to strengthen, about the same as a month previously, with the remainder expecting no change.

The poll also showed fund managers cutting their expectations for corporate performance. They are now expecting average global growth in earnings per share over the next 12 months of 5.6 percent compared with expectations for 8.1 percent in July and 9.0 percent in June.

The negative tone also spilled out into monetary policy views and expectations. The number of respondents expecting long-term rates to be higher in 12 months time dropped to 73 percent in August from 84 percent in July.

CASH IS KING

Merrill's survey showed a sharp increase in risk aversion, essentially an unwillingness to invest in assets such as equities.

Some 35 percent of funds managers said they were taking lower than normal risk compared with 11 percent who were taking higher than normal risk.

Similarly, respondents reported cash positions in their portfolios that were the highest level seen by Merrill since March 2003. More than 40 percent said they were overweight cash.

Investors also shortened their investment time horizon, another sign of risk aversion.

In terms of portfolio holdings, a plurality of fund managers, 45 percent, continued to hold overweight positions in equities but the number of those holding underweight positions jumped to 31 percent from 19 percent in July.

There was little change in bond portfolios, with 63 percent holding underweight positions and 9 percent overweight.

 

 

 

 

 

 

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