Fund Managers Optimism

Fund managers' optimism about the global economy is at its highest level in nearly six years, according to the Merrill Lynch Survey of Fund Managers for August. Now I know you would expect them to be optimistic but this time I think they might actually believe it.

Seventy-five per cent of respondents said they believed the world economy would become stronger over the next 12 months, up from the 63 per cent recorded in July and the highest figure since November 2003. Further, 70 per cent of respondents expected global corporate profits to increase in the coming year, up from 51 per cent last month.

The survey showed managers were also putting their cash back into equities. Equity allocations have risen sharply, with 34 per cent of respondents now overweight in the asset class compared with 7 per cent in July.

Michael Hartnett, chief global equities strategist at Banc of America Securities-Merrill Lynch Research, said: "Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March. But with four out of five investors predicting below-trend growth for the year ahead, a nagging lack of conviction about the durability of the recovery remains. "We have yet to see investors fully embrace cyclical regions such as Japan or Europe, or Western bank stocks."

Within Europe, 66 per cent of respondents expected the European economy to improve in the next 12 months compared with 34 per cent in July. Investors in Europe took overweight positions in basic resources and radically reduced their overweight in pharmaceuticals. The survey also found that European managers had increased their cash positions, while their overall sector conviction esd near record lows.

Separately, global equity fund managers are waiting for fundamentals to catch up with the recent market rises before making any substantial policy changes, according to the latest annual review of global equity funds from Standard & Poor's Fund Services. The firm said the market upheaval led to a general move toward developed markets, defensive sectors and larger companies.