GLOBAL – Fund managers have now shifted their attention away from corporate balance sheet problems such as underfunded pension plans, according to Merrill Lynch’s monthly survey of fund managers.
David Bowers, Merrill’s chief investment strategist, said the change in attitude was a “major psychological shift”, with fund managers now looking for firms to focus on capital expenditure.
It was the first time since the series began in June 2002 that balance sheet repair was not fund managers’ top priority for companies.
The report found that 46% of the managers surveyed wanted companies to increase capex, up from 36% in October and 26% in August this year. Just 33% wanted firms to improve their balance sheets, by topping up their pension plans or repaying debt. This compares to 41% last month and 50% in August.
“This month we have a crossover,” said David Bowers, Merrill’s chief investment strategist. “Fund managers want companies to position themselves for top line growth.”
The survey suggests fund managers are bullish about the global economy and markets. “International markets are going up, that’s the main message of the survey,” Bowers said.
According to the poll, a net 84% believe that interest rates will be higher a year from now – and 90% of respondents believe the next move in US interest rates is up not down.
“There is a hard core of people who believe recovery is here with a vengeance,” Bowers said. The findings chime with the latest institutional investor confidence numbers from State Street Associates, whose investor confidence index was up 1.2 at 106.2, from October’s revised 105.0.
Bowers’ colleague, strategy analyst Sarah Franks, said that this month’s survey demonstrated the strength of Europe. “This month was really Europe’s turn to shine,” she said. She pointed out that, for the first time since mid-1999, 80% in the euro zone think monetary policy is about right. And equities in the euro zone were seen as more undervalued.
“The euro zone is overtaking Japan where the strategic case for owning equities is getting stronger,” she added.
Bowers said the fundamental question facing the world economy was how long Asia would be able to continue providing the US with cheap credit. He likened the situation to Asia almost providing the US with a “vendor financing deal” to buy its goods.
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