Investors this month were the most risk adverse since the bull market began as prospects for economic growth deteriorated to a nine-month low, a Merrill Lynch & Co survey showed.
Forty-eight percent of respondents to the poll conducted between Sept. 7 and Sept. 13 said their willingness to take on investment risks was "lower than normal," the biggest percentage since March 2003. Rising defaults are seen as the greatest threat to financial markets, the survey showed.
"People are a little more concerned about the so-called credit crunch," said David Bowers, a consultant to Merrill, the world's third-largest securities firm, at a press briefing in London on Wednesday. "Risk aversion is extreme. Growth expectations have fallen very, very sharply."
The net balance of investors who expect the global economy to weaken in the next year surged to 48 percent this month, the highest since December, according to the survey, which questioned 188 respondents that together manage US$615 billion. That compares with 26 percent last month.
Even so, the Morgan Stanley Capital International World Index has rebounded 7.2 percent since slumping to a five-month low on Aug. 16, boosted by speculation that the US Federal Reserve would cut interest rates to prevent a recession.
The central bank on Tuesday lowered its benchmark lending by an unexpected 50 basis points, sparking a rally in global equities.
Thirty-five percent of money managers said equities were "undervalued," according to the survey. That's up from 22 percent last month, and the highest reading since around mid-2003.
"Fund managers probably feel a little vindicated by what the Fed has done," Bowers said. "There is still a reluctance to give up on equities."
Forty-six percent of respondents said they were "overweight" equities in September, down from 49 percent last month. Twenty percent said they were "underweight." An "overweight" stance means investors hold more of the securities than are represented in asset-allocation models.
The outlook for earnings growth deteriorated to a one-year low. Sixty-eight percent of survey respondents said they expected corporate profits to weaken over the next 12 months, the highest percentage since September last year and an increase from 51 percent last month.
Investors' average cash holding was little changed this month at 4.3 percent of total assets.
That was down from 4.4 percent, which was the highest since March.
The euro zone, made up of the countries that share the currency, and emerging markets remain the investors' favorite regions for equities. The US is still the least favored.
A net 37 percent of investors were "overweight" euro-region shares this month, up from 35 percent. The net percentage of investors who are "overweight" emerging-markets equities jumped to 36 percent from 26 percent last month. A net 30 percent said they were "underweight" in US stocks, up from 20 percent.
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