Perceptions of economic fundamentals have hardly changed over the past month despite a 4% rise in global stockmarkets, according to the latest Merrill Lynch survey.
Fund manager perceptions of such indicators as global growth projections, profit forecasts and margin expectations have altered little. Their view of the position of the world economy has not changed for more than 18 months.
David Bowers, chief global investment strategist at Merrill Lynch, says: “The story is that there is no story.”
However, he also warns against complacency. “The cycle has been suspended rather than died,” he says.
There is a danger that fund managers will wrongly assume that stability will last for ever. For this reason, a key question is, “what is going to re-inject volatility into corporate cashflow?”.
The one macro area where there is a significant shift is in perceptions of the output gap. A net 12% of fund managers say it is positive – meaning the economy is operating above its long-term sustainable growth path – compared with 3% in March. In February, a net 7% said it was negative, while in January the figure was 10%.
This shift is significant as a positive output gap is generally associated with rising inflation. For this reason, it is not surprising that monetary policy is widely regarded by managers as too stimulative.
Meanwhile, fund managers are sharply divided on Britain’s economic management in response to a special set of questions.
Global asset allocators generally have a favourable view of New Labour’s monetary policy over the past decade. Ian Stewart, chief European economist at Merrill Lynch, says: “There is a clear message that fund managers globally see this as a significant positive for UK equities.”
However, they are broadly neutral on fiscal policy and negative on microeconomic policy. Those based in Britain tend to be more strongly positive on monetary policy but also more negative on fiscal and microeconomic policy.
A total of 284 fund managers, with $996bn (573bn) under management, participated in the global and regional surveys from March 31 to April 6. The surveys were conducted with Taylor Nelson Sofres, a market research company.”