GLOBAL - Liquidity levels have fallen at their fastest rate since the start of the year, new fund manager data reveals.
In the latest in a series of surveys from Merrill Lynch, fund managers warned how there were no high cash balances “waiting in the wings.” The survey showed how the average cash balance fell sharply to 4.6% in April from 5.4% in March - the lowest percentage since January 2003.
Most managers also forecasted single-digit corporate earnings growth, sluggish top-line sales growth, and deteriorating pricing power. Equities were also seen as undervalued, bonds overvalued, but fund managers no longer regarded equities as oversold.
David Bowers, chief investment strategist at Merrill Lynch, said: “It is worrying that fund managers are still quite pessimistic about the volatility of global corporate earnings, with 55% believing the earnings’ stream is becoming more volatile and only 12% thinking it is becoming less volatile.”
In general, the more volatile a corporate earnings’ stream the lower the price-earnings multiple it can sustain.
“If corporate earnings are still becoming less predictable, then equities may not be as cheap as they look,” Bowers added.
The 314 institutional investors surveyed in April represent a total of US$751bn.
The survey also found that most managers were negative on the US dollar, with 35% having hedged all or part of their exposure. Most felt that the currency was increasingly under threat from growing budget deficits which could reach up to 5% of gross domestic product this year.
Bowers warned that if the world were to change the terms on which it supplied America with capital, the move could also have major consequences for the eurozone “which is far more exposed to the US credit cycle than is generally appreciated.”
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