The latest monthly Merrill Lynch Fund Manager Survey conducted between October 4 and October 11 of 253 global institutional investors demonstrates the level of uncertainty that exists in the global equity markets.
Of those surveyed, 25% felt that the global economy would be much stronger in 12 months, while another 25% felt that the global economy would be much worse in 12 months time. "The terrorist attacks in the US have created a defining moment where fund managers need to hunker down for recession or take the plunge into cyclicals," says David Bowers, Merrill Lynch's global investment strategist.
The survey also revealed a huge shift of interest away from the US market and into Eurozone markets. Some 25% felt that US equities would be the worst performing regional market over the next 12 months, up from 16% in August when the survey was last conducted. Also a majority of investors felt that the US was the most overvalued market while a majority felt that Eurozone markets were the most undervalued.
In terms of currencies, 63% of investors reported that the Euro was their favoured currency, up from 57% in August. Unfortunately for Japan, 61% responded that the Yen was their least favourite currency.
Further reflecting the uncertain direction of the market, 42% of fund managers said they were overweight in cash, a massive leap from the 23% who said they were overweight in cash in August.
Two other interesting statistics have emerged. Firstly, 75% of respondents felt that current global monetary policy is appropriate at this time; up from August when 27% felt that monetary policy was too restrictive. But according to the Merrill Lynch Buy-Side Indicator, 69% of fund managers still expect the global equity markets to move up.
So uncertainty reigns; investors have many different views over where the markets are going but little consensus. But for those seeking to follow the liquidity flows, it would appear that the survey suggests they go long European equities.