Fund Managers Pull Back from Brink

Buyside sentiment has stepped back from the brink of despair, but more than a third of investors want to see greater fiscal stimulus, according to Merrill Lynch’s latest global fund manager survey. “The net balance of investors who expect the global economy to worsen in the coming year has fallen to 36%, down from 60% in October. More than a quarter of respondents believe the economy will strengthen in 2009,” says the shop. “Cash levels average 5.5%, up from 5.1% in November, the highest level since 2001. Furthermore, a widespread perception exists that stocks are cheap, both in absolute terms and relative to bonds,” adds Merrill. “Market sentiment, high cash levels and the prospect of US fiscal stimulus in January point to a possible New Year rally in equities,” says Gary Baker, head of EMEA equity strategy at Merrill Lynch. “It suggests that going into 2009 with textbook defensive positions in a small number of sectors could be dangerous,” he adds. This should have a knock on bullish impact on LatAm stocks. A majority of fund managers in the Merrill survey believe equities are undervalued. And EM equity allocations have fallen to their lowest level since 2001. “A net 17% of global asset allocators are underweight emerging market equities compared to a net 6% in November,” says Merrill. China remains by far the preferred choice of Asian equity investors and EM specialists.