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http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/15/cnfund115.xml
Fund managers fear bond rout and stagflation more than recession
By Ambrose Evans-Pritchard
Last Updated: 1:24am BST 15/05/2008
Fund managers across the world are no longer worried about the imminent risk of recession, fearing that inflation has become the bigger danger after the emergency stimulus by the US Federal Reserve.
The monthly survey by Merrill Lynch shows that portfolio chiefs are still deeply disturbed by the imbalances in the global system, but are now switching their focus to the danger of a bond debacle.
David Bowers, chief adviser to the Merrill report, said that 80pc of investors expect long-term interest to move higher over the next year. "Evidence is pointing to a possible sell-off in bonds as inflation worries mount. A sharp rise in bond yields could help convert this financial crisis into an economic crisis," he said.
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The proportion expecting a global recession within a year has fallen from 40pc to 29pc since last month, probably reflecting the view that the Fed has stabilised the banking system by rescuing Bear Stearns. Even so, a full 18pc think we are already in a recession, a view that conflicts starkly with mainstream consensus among central banks.
"The mix of concerns for investors has changed. There is a deeply embedded view that investors are now facing a stagflationary environment. Concerns about earnings haven't got worse, but they haven't gone away," said Mr Bowers.
The funds think that earnings forecasts by analysts are "detached from reality", with 77pc across the globe saying that estimates are too high. Least popular are UK equities, in part because of moves to give the UK Pensions Regulator more power to stop companies tapping their pension kitties to pay dividends to shareholders. UK managers are holding almost record levels of cash.
Read more by Ambrose Evans Pritchard
A net 52pc think oil is overvalued, and 29pc think gold is too high. Even so, European funds are pouring money into the commodity sector as they flee deterioration at home, betting that the infrastructure boom in emerging markets is not over. A net 41pc are overweight in oil and gas.
The survey is based on 179 managers worldwide controlling $615bn in funds. One thing they seem to have in common is contempt for banks. Financial stocks have sunk into the ultimate hell, the "value trap".
Investors seem to believe the European Central Bank has been vindicated on inflation. The proportion complaining the ECB has been "too restrictive" is down from 48pc to 20pc since last month.
Fund managers fear bond rout and stagflation more than recession
By Ambrose Evans-Pritchard
Last Updated: 1:24am BST 15/05/2008
Fund managers across the world are no longer worried about the imminent risk of recession, fearing that inflation has become the bigger danger after the emergency stimulus by the US Federal Reserve.
The monthly survey by Merrill Lynch shows that portfolio chiefs are still deeply disturbed by the imbalances in the global system, but are now switching their focus to the danger of a bond debacle.
David Bowers, chief adviser to the Merrill report, said that 80pc of investors expect long-term interest to move higher over the next year. "Evidence is pointing to a possible sell-off in bonds as inflation worries mount. A sharp rise in bond yields could help convert this financial crisis into an economic crisis," he said.
advertisement
The proportion expecting a global recession within a year has fallen from 40pc to 29pc since last month, probably reflecting the view that the Fed has stabilised the banking system by rescuing Bear Stearns. Even so, a full 18pc think we are already in a recession, a view that conflicts starkly with mainstream consensus among central banks.
"The mix of concerns for investors has changed. There is a deeply embedded view that investors are now facing a stagflationary environment. Concerns about earnings haven't got worse, but they haven't gone away," said Mr Bowers.
The funds think that earnings forecasts by analysts are "detached from reality", with 77pc across the globe saying that estimates are too high. Least popular are UK equities, in part because of moves to give the UK Pensions Regulator more power to stop companies tapping their pension kitties to pay dividends to shareholders. UK managers are holding almost record levels of cash.
Read more by Ambrose Evans Pritchard
A net 52pc think oil is overvalued, and 29pc think gold is too high. Even so, European funds are pouring money into the commodity sector as they flee deterioration at home, betting that the infrastructure boom in emerging markets is not over. A net 41pc are overweight in oil and gas.
The survey is based on 179 managers worldwide controlling $615bn in funds. One thing they seem to have in common is contempt for banks. Financial stocks have sunk into the ultimate hell, the "value trap".
Investors seem to believe the European Central Bank has been vindicated on inflation. The proportion complaining the ECB has been "too restrictive" is down from 48pc to 20pc since last month.