Fund managers most negative on equities in 10 years

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By Jeremy Gaunt

Fund managers are gloomier about equities than at any time in at least the last 10 years and aversion to risk is close to what it was during the Bear Stearns crisis in March, a Merrill Lynch poll showed on Wednesday.
In its July poll of 191 global fund managers, the investment bank also found investors' love affair with emerging markets to be souring and their demand for safe-haven cash at highs.
But the poll also showed that concern about inflation has waned, suggesting that investors are expecting a slowing global economy to squelch the threat of price rises.
"This very much is the age of extremes," said David Bowers, Merrill's poll consultant.
The survey showed 58 percent of fund managers underweight equities in July versus 50 percent in June and just 35 percent in May.
Most significantly, this was the most underweight the fund managers have been versus those who are overweight in the roughly 10 years of the survey, including the post Internet bubble period.
Cash holdings were the inverse, with a record 60 percent overweight versus 51 percent in June and 42 percent in May.
Reuters latest asset allocation polls of leading investment houses, issued at the end of June, produced a similar finding.
MSCI's main world stock market has lost more than 9 percent since the June Merrill poll, battered by worries about a slowing economy, rising oil prices and renewed fears for the stability of the financial system.
Bowers said the new poll showed a sharp shift in fund manager attitudes towards emerging markets equities, until recently the darlings of the investment community.
"We have more asset allocators overweight U.S. equities than we have emerging equities," he said.
Looking at regional stock allocations, the poll found 30 percent of respondents overweight in emerging markets compared with 27 percent who were underweight. This compared with 42-17 in June and 49-18 in May.
Some 40 percent of respondents were overweight U.S. stocks, and 30 percent for Japan. Britain and the euro zone, however, were deeply out of favour.
INFLATION REVERSAL
One of the sharpest monthly moves in the survey was in attitudes to inflation, an issue that had been seen as a growing threat to investments.
The percentage of respondent who said that global core inflation would be higher in 12 months time fell to 43 percent in July from 59 percent in June. Some 40 percent now believe it will be lower.
Bowers said fund managers appeared to be shifting their concerns from price rises to slowing overall economic growth.
Bowers said the poll also indicated that investors were deeply uncertain about the prospects for companies next year and did not appear to believe relatively bullish analyst estimates. (Reuters)