Fund managers want to get fiscal

Global fund managers are hoping that fiscal policy will help trigger a market rally in 2009, according to the latest monthly survey from Merrill Lynch.
Managers are coming to the conclusion that interest rates cannot get much lower. The net percentage saying that rates were too restrictive fell from 59% in October to 17% in December – and the survey was conducted before the cut in American interest rates to almost zero.
There is also reason to suggest that the economic cycle is close to its trough. Risk aversion is moderating, although from extreme levels, and cash holdings are at their highest levels since 2001. Also defensive sectors have risen strongly.
Under such circumstances greater government spending and tax cuts could provide the basis for recovery. Gary Baker, the head of the EMEA strategy group at Merrill Lynch, says: “The debate has moved on to fiscal policy”.
Under such circumstances of rapid monetary expansion and fiscal boosts it is surprising that managers are so sanguine about inflation. A net 82% say inflation is likely to be lower in a year’s time. Baker says there are inflationary dangers ahead but it is not likely to become apparent till 2010 or 2011.
The most heavily overweighted sectors are classic defensive plays such as consumer staples, healthcare, telecoms and utilities. America is by far the most overweight position of any geographic region.
None of the world’s leading currencies are seen as undervalued.
A total of 196 global fund managers with $582 billion (£376 billion) of assets participated in the survey. It was conducted jointly with Taylor Nelson Sofres, a market research company, from December 5-11.