GLOBAL - Investors continue to be bearish on both bonds, long-term interest rates and the global economy for the second consecutive month.
Research from Merrill Lynch also suggests that a tactical rally in equities is becoming increasingly likely.
Merrill polled 300 institutional fund managers representing a total of US$732bn.
About 55% of respondents believed that bond yields will be higher a year from now, compared to 14% expecting short term rates to be higher.
Moreover, almost 66% thought that global bond markets were overvalued, with just 4% thinking there was any value left in bonds. Conversely, despite over 50% thinking stocks were undervalued, most were still reluctant to buy.
David Bowers, chief investment strategist at Merrill Lynch, said: “Fund managers took a much more cautious line on the outlook for the real economy, commodity prices, nominal gross domestic product growth, and earnings per share growth.
“What we find really intriguing is how negative investors are toward bonds, [and] in the same breath they are so convinced that we are living in an unusually low nominal growth environment.”
Generally, not until prospective growth turns up do major bear markets in bonds tend to begin, he added.
The survey also highlighted pointers towards a stock market rally, including a sharp rise in overweight cash balances and a growth in the level of risk aversion.
“Taken together, even more so than the previous month, the convergence of attractive valuations, rising cash levels, and a growing sense that equities are becoming oversold often is a precondition for a significant tactical equity market rally,” said Bowers.
Additionally, most managers still considered the eurozone to have the have worst profits outlook. The US remained the most favourable outlook for corporate profits. The UK was seen to have the best quality of earnings and Japan the worst.
The survey was produced in conjunction with market research company Taylor Nelson Sofres.
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