It’s the non-shock headline of the day perhaps; but fund managers surveyed by Bank of America Merrill Lynch continue to position themselves for the `ideal’ economic recovery scenario — one where the growth rate is neither too hot, nor too cold.
From BofAML’s November Fund Manager Survey:
For now, consensus still Goldilocks with a small “g”
Global growth expectations for 2010 remain rock-solid with less-than 10% of investors fearing a double-dip. But consensus predicts a small rather than big recovery. Inflation expectations are on the rise: a net 47% see higher inflation over the next 12 months. But inflation expectations have not yet risen to levels that engender policy tightening fears: less than a quarter of investors believe the Fed will tighten before 2010 H2.
And that’s the key point — even if fund managers are still, on the whole, in the `goldilocks‘ camp of the economic recovery, they are tiptoeing towards the inflationary side. According to the survey, in November,fund managers continued to exit inflation-unfriendly things like bonds and cash, and move into equities — and increasingly commodities.
Here are the charts (click to enlarge):
And on that bond point — BofAML makes mention of a possible “inflection point.”
The percentage of managers who want companies to use their cash flow for balance repair is steadily decreasing, while the percentage that want companies to use their cashflow to increase capital expenditure is increasing. According to the survey:
Chart 9 on page 4 in this note shows panellist’s response to the question “what would you like to see companies doing with cash flow?” Improve balance sheets remains top choice but fell to 36% (down from 50% in September) and is quickly approaching the level of those nominating increased capital spending (32% up from 26% last month). This is a potentially important event; when these two lines have crossed in the past (October 2003 and January 2008) they have signalled turning points in relative performance between equities and bonds, as shown in chart 3. This seems logical given that adding gearing to balance sheets through capex starts to transfer risk from equity to bond holders.
So much for deleveraging then.
Related link:
Fund managers in call for capital spending – FT
Corporate Debt: The Great Deleveraging – BusinessWeek