GLOBAL - Most institutional fund managers worldwide still want companies to use cashflow to rebuild balance sheets, including plugging pension fund deficits, rather than increasing capital spending.
The latest in a series of surveys from Merrill Lynch Investment Managers shows that although balance sheet problems persist, managers now expect growth to come from higher volumes rather than cost-cutting.
Corporate America is still seen as having the most favourable outlook for profits and the highest quality of earnings, although US equities are viewed as overvalued.
Emerging markets, however, are seen as having just as favourable a profit outlook, but on more attractive valuations.
Bond yields are also expected to rise, despite a less than upbeat view of the global economy.
The survey shows that managers view the monetary policies of the major economies to be too stimulative and expect short-term rates to be higher in one year's time.
Such a deterioration in interest rate expectations would normally be accompanied by the prospect of much stronger economic growth and higher prices for goods and services said David Bowers, chief investment strategist at MLIM.
But although an increasing number of managers believe companies will improve their earnings through higher sales volumes, not just cost-cutting, they still expect world economic growth to be modest, with little sign of a major resurgence in pricing power.”
The view has seen one of the most widespread underweightings of bonds the survey has ever recorded, added MLIM, and is a stance more in keeping with an upturn in the economic cycle. Overall, equities are seen as fairly valued. Managers are still reluctant to lengthen their investment time horizons.
Cash positions also remain unchanged at just over 4% of assets under management.
MLIM polled 276 fund managers with a combined US$747bn assets under management.
Here are key takeaways from our 2019 Asset Allocation Outlook on how we are positioning asset allocation portfolios in light of our outlook for the global economy and markets.
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