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Jul 16, 2012

Global investors drop profit expectations

Mood among fund managers continues to decline with a quarter expecting global recession, finds survey

Investors have lowered their expectations for corporate profits, although there has been an improvement in sentiment toward the eurozone, according to the July global fund manager survey from Bank of America Merrill Lynch (BofAML).

The survey, which polled 190 fund managers with $567 bn in assets under management, finds a net 38 percent think corporate profits will worsen over the next 12 months, a fall from 19 percent a month ago.

A quarter of respondents are also predicting a global recession at some point over the next 12 months.

Profit expectations have had to ‘catch up’ with the worsening global economic outlook, said Gary Baker, head of European equities strategy at BofAML, at a press briefing in London this morning.

In a more positive move, cash balances did fall slightly over the last month – from 5.3 percent to 4.9 percent – but this is still historically a very high figure, Baker pointed out. ‘Lots of cash is sitting on the sidelines, as yet uncommitted,’ he said.

Amid this gloomy picture, BofAML’s survey did report an improvement in investor sentiment toward the troubled eurozone. Investors remain bearish on eurozone equities, but the proportion underweight the region’s stocks fell from a net 36 percent in June to a net 26 percent this month.

A net 19 percent of respondents, meanwhile, say they are overweight emerging market equities.  

All the fund managers polled are either global specialists or regional specialists with a global view.