The survey suggests investors could view oil prices as more of a threat to corporate profit margins than they are of triggering higher inflation. The group’s chief investment strategist David Bowers says: “Investors have been worrying too much about interest rates and inflation and not enough about profit margins.”However, while 95% of the managers polled in the survey expect the next move by the US Federal Reserve will be to increase interest rates. More now say this will not occur as early as previously expected. The survey also suggests US equities are at their least popular level since 2002. Some 40% of managers felt the country has the worst outlook for profits and as a result they are continuing to decrease their equity allocation it. Other findings in the survey include a general view the global economy is slowing down, an increased confidence in emerging market equities, and that a focus is required on cost reduction rather than price increases to generate earnings growth. The US, UK and Pacific (ex Japan) economies are all expected to weaken over the next 12 months. Merrill Lynch strategy analyst Sarah Franks says: “Asian managers are more worried about inflation than their global counterparts, particularly in China.” Fund managers, driven by a renewed optimism for China’s economy, have increased their investment in emerging market equities. Over a third of respondents said emerging markets had the best outlook for corporate profits. This represents an increase of 14% from the previous months figure. Cyclical stocks are also still in favour, despite weak growth expectations. On average, managers allocations are most overweight in energy and most underweight in autos, while there has also been a big change in allocation of out of consumer staples. A total of 303 managers participated in the global and regional surveys, which was conducted between October 8 to October 14, 2004, with the help of the market research company Taylor Nelson. The impact of the sharp fall in metal commodity prices, which occurred on October 13, was unlikely to be reflected in the poll.