Cash balances up as economic worries rise
By Jennifer Hughes in New York
Published: August 17 2004 20:39 / Last updated: August 17 2004 20:39
Fund managers' cash balances have reached levels associated with extreme periods of uncertainty, according to a survey by Merrill Lynch that highlighted growing risk aversion in the investment community.
The net balance of managers “overweight” in cash relative to their benchmarks was 30 per cent. Average cash balances rose to 4.8 per cent the highest in more than a year.
Merrill said the only other times the survey had shown cash balances at such levels was after the September 11 2001 terrorist attacks, the October 2002 credit crunch and in the lead-up to the war in Iraq last year.
The survey, of 293 money managers who among them look after assets worth about $940bn, showed that pessimism was deepening, especially regarding US equities, with more than half of managers rating it their least liked region.
Investors also turned negative on global corporate profit growth for the first time in more than three years. A net 18 per cent expected profits to deteriorate, against a net 2 per cent who still expected an improvement in the previous month's survey.
David Bowers, chief global investment strategist at Merrill Lynch, said: “There's a veritable collapse in expectations. They are abandoning corporate earnings and focusing on cash.” The increasing pessimism comes as US markets remain near their lows for the year. For the first time in the survey's history, more fund managers felt that returning money to shareholders was a better use of corporate cash than capital expenditure.
Mr Bowers said: “With investors at the moment, it's a case of ‘show me the money'. “Many of them have given up believing in global economic growth, so if nothing better can be done with corporate cash, they want it back.” A third of the fund managers surveyed by Merrill said their investment horizon was shorter than normal which is usually seen as a sign of risk aversion and more than a third said that they were taking lower risks than normal.
More than half of those surveyed believed that the global economy would get a little weaker over the next year, against a third who expected it to strengthen.
Just over half 51 per cent of managers rated the US their least-liked region for equities, up from 43 per cent in July. Investment opportunities outside the US were viewed more favourably, with 32 per cent ranking Japan as their preferred region, down from 36 per cent in July.
