Pessimism Wanes, Investors Hoard Cash, Merrill Says

By Sarah Jones

Jan. 21 (Bloomberg) -- Concerted efforts by central banks and policy makers have helped lift global investor sentiment this month, even so money managers continue to hoard cash near levels not seen since 2001, a Merrill Lynch & Co. survey showed.

Pessimism on global growth has more than halved in the last three months, according to the survey of managers who collectively manage $597 billion. Twenty-four percent expect a weaker economy over the next 12 months, compared to 65 percent in October.

“Investors are long on hope but short on conviction,” said Gary Baker, head of equity strategy for Europe, Africa and the Middle East at a Banc of America Securities-Merrill Lynch press briefing in London. “People want to be optimistic. There is still huge darkness out there, particularly in Europe.”

The MSCI World Index is up almost 6 percent since tumbling to a five-year low on Nov. 20, as the Federal Reserve slashed borrowing costs to as low as zero percent, and the Bank of England cut interest rates to a level not seen since its founding in 1694.

The benchmark of 23 nations had rebound as much as 23 percent before companies from Alcoa Inc. to Deutsche Bank AG fueled concern the global recession will wipe out profit growth.

Even so, earnings expectations and risk appetite has improved from last year, the survey of 205 fund managers showed. A net 55 percent expect to see further deterioration in earnings in January, that’s up from a low of 71 percent in November.

Cash held in investor portfolios remained at the highest levels since 2001, with 44 percent of those surveyed “overweight” in the asset class.

“The fear factor remains,” said Baker. Investors “have firepower to act, but are unconvinced by the modest recent equity rally, suggesting it is a bear market rally in both sentiment and markets.”

Investors preferred emerging markets and Japanese regions at the expense of the U.S. European equities remained the least favored by money managers.

Pessimism on banks continued to rise as investors remained overweight in so-called defensive stocks including pharmaceuticals, telecommunications and consumer staples.

The survey of 205 fund managers was conducted between Jan. 9 and Jan. 15. As of this month, Merrill Lynch has changed the format of its survey and will no longer publish full historical data.

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To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.