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We're in a global recession say 7 out of 10 investors
Investment bank Merrill Lynch admits that its recent survey of international fund managers was one of its most pessimistic ever - with 69% of fund managers polled stating that they believe that the world is already in recession.
(This figure is up sharply from 44% in September and 24% in August.)
Over the past month fund managers have lost faith in global growth, commodities, China’s economy and emerging markets and the expectation of the majority is that the global economy and corporate profits will deteriorate over the coming year.
In the survey, which was conducted early this month and completed as global equity markets fell in value by 18.7%, fund managers said that monetary policy is too restrictive and that companies should use what cash flow they have to rebuild balance sheets.
One of the most extraordinary revelations to emerge from the survey is the speed at which investors have abandoned the concept of “stagflation”. In July, 82% of fund managers thought we were in a world of ‘below-trend growth’ and ‘above-trend inflation’. This month that figure has dropped back to 30%.
In contrast there has been a sharp rise in the percentage of respondents who believe we now face a world of ‘below-trend’ growth AND ‘below-trend’ inflation.
Low risk appetite and a belief that equities are undervalued could provide the foundations for a rally. Growing risk aversion has led to a record 49 percent of respondents who are overweight in cash. The number of respondents who believe equities are undervalued has reached a 10-year high, at 43 percent.
"Fund managers are waiting for the triggers that will give them the confidence to buy," said Gary Baker, head of EMEA equity strategy at Merrill Lynch. "What they are looking for is a loosening of monetary conditions and for third quarter earnings to clarify where problems and opportunities lie across equity markets."
Three factors are coming together that historically have tended to be associated with market rallies: (1) risk appetite is extremely pessimistic (people have pulled back, which forces values down); (2) cash levels are extremely high; and (3) for the first time in this crisis, there has been a sharp increase in the number of managers believing that equities are undervalued; a net 43%, the highest reading in more than a decade.
All that is missing is a catalyst to put this cash back to work.
That catalyst may come with a shift in perceptions of monetary conditions.
Here’s hoping!
(This figure is up sharply from 44% in September and 24% in August.)
Over the past month fund managers have lost faith in global growth, commodities, China’s economy and emerging markets and the expectation of the majority is that the global economy and corporate profits will deteriorate over the coming year.
In the survey, which was conducted early this month and completed as global equity markets fell in value by 18.7%, fund managers said that monetary policy is too restrictive and that companies should use what cash flow they have to rebuild balance sheets.
One of the most extraordinary revelations to emerge from the survey is the speed at which investors have abandoned the concept of “stagflation”. In July, 82% of fund managers thought we were in a world of ‘below-trend growth’ and ‘above-trend inflation’. This month that figure has dropped back to 30%.
In contrast there has been a sharp rise in the percentage of respondents who believe we now face a world of ‘below-trend’ growth AND ‘below-trend’ inflation.
Low risk appetite and a belief that equities are undervalued could provide the foundations for a rally. Growing risk aversion has led to a record 49 percent of respondents who are overweight in cash. The number of respondents who believe equities are undervalued has reached a 10-year high, at 43 percent.
"Fund managers are waiting for the triggers that will give them the confidence to buy," said Gary Baker, head of EMEA equity strategy at Merrill Lynch. "What they are looking for is a loosening of monetary conditions and for third quarter earnings to clarify where problems and opportunities lie across equity markets."
Three factors are coming together that historically have tended to be associated with market rallies: (1) risk appetite is extremely pessimistic (people have pulled back, which forces values down); (2) cash levels are extremely high; and (3) for the first time in this crisis, there has been a sharp increase in the number of managers believing that equities are undervalued; a net 43%, the highest reading in more than a decade.
All that is missing is a catalyst to put this cash back to work.
That catalyst may come with a shift in perceptions of monetary conditions.
Here’s hoping!
Views: 2
Replies to This Discussion
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Permalink Reply by Mrs. C. Jarvie on -
My understanding is that recessions MUST happen from time to time. With recession, the unsustainable pieces of the business world go into decline and then fail; unfortunately they take some closely linked yet otherwise sustainable businesses down with them. Without recession, every sector of the economy would grow unendingly. Endless growth is impossible as resources will decline, consumer trends will change, poorly designed schemes will fail, countries will go to war, ad libitum.
If we are in or near recession, we should prepare for what we know happens next. Unemployment will rise internationally. Our country and other countries will produce fewer goods and services. Less capital will be invested in both new and established businesses. Recession is a known variable in the global economic calculation.
Let's ask better questions than "are we going into recession?" or "are we in a recession?". I propose we ask "how do we take advantage of a global economic slowdown that offers us more available employees, allows businesses to focus on improving their existing assets, and encourages investors to slow down and learn more about the twenty-first century global market place?"
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Permalink Reply by Bandwidth on -
Hello Mrs. Cake Jarvie
Well written wel presented post. If more people looked at the world the way you do there would be a lot more action and a lot less blaming others.
Lead the way :-)
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Permalink Reply by Mrs. C. Jarvie on
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My preferred solutions involve as little government assistance (and interference) as possible and engage existing institutions (as opposed to starting up new institutions.) Best to keep the business owners and investors in control while minimising administrative burdens.
For example, the Western Australia Chamber of Commerce and Industry is an established not-for-profit institution that can bring WA businesses and investors together to form a discussion group that asks better questions. The group can invite a scholar from Curtin University's business school to offer a historical perspective on global recessions and local impacts. The group can invite a representative from the office of the Hon. Troy Buswell, WA's Treasurer and Minister for both Commerce and Housing. The knowledge must be brought together and presented to the business owners and investors who are willing to develop, and share, solutions.
What begins as a discussion group that asks economic questions which assume that we can use a slowing economy to our advantage, develops into an advisory council.
This is a Perth-based example, but the same tactics can apply anywhere.
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