Stocktake

Compiled by PRONSIAS O'MAHONY

Cash is king for fund managers

FEARFUL global fund managers are holding more cash than at any time since January 2009, according to Merrill Lynch’s latest monthly survey.

Despite shying away from risk, a net 48 per cent of fund managers believe global equities are undervalued, a net 45 per cent believe Europe is the most undervalued region, and a net 83 per cent see bonds as overvalued – all hitherto unseen readings.

The survey also reveals a sharp about-turn in attitudes towards economic policy. Last month a net 15 per cent believed global monetary policy was too stimulative. Now a net 6 per cent see it as too restrictive, the highest reading since December 2008.

Markets are anticipating “decisive action” from near-term policy meetings, Merrill said.

Euro disintegration predicted by Zulauf

SWISS hedge fund manager Felix Zulauf, who predicted the global financial crisis of 2008, is as pessimistic as ever.

While oversold markets may briefly bounce, the euro “disintegration” will begin in the second half of 2012, he said last week. Politicians will go from “one compromise and quick fix to the next, with the crisis deepening until some nations at the periphery won’t be able to stand the economic pain anymore”.

A euro collapse, coupled with a Chinese property bust, means there is potential for a “broad-based nationalisation of the credit system, capital controls and dramatic restrictions on financial markets”.

In short, it’s time for cash and gold, Zulauf said.

European equities ‘attractively priced’

LONDON strategist Niels Jensen has been bearish for most of the last decade. However, he changed tack late last year, and his most recent client letter describes European equities as “extraordinarily attractively priced at levels not experienced since the dark days of the early 1980s”.

If structured correctly, a euro zone exit is “not the Armageddon it is so often portrayed to be”, said Jensen, arguing that historical analysis of currency break-ups offer little support for “doomsday prophecies”. When the perma-bears realise that, the “mother of all equity bull markets will be unleashed” in Europe.

History indicates higher stock values

HISTORY indicates higher US stock prices in the coming months, according to Sam Stovall of Standard Poor’s.

The SP 500 could hit new highs for 2012 in just 77 calendar days, Stovall said. Since the second World War that has been the average recovery time for market pullbacks in excess of 8 per cent.

There have been 86 instances of market declines of 5 per cent or more since the second World War. “In 83 of these times we’ve recovered everything we’ve lost in a median of 14 months or fewer.”

The bright start to the year also augurs well. “Going back to WWII, whenever the market was up in both January and February, it was up for a full calendar year,” he said. This has happened 25 times, with the average total return just above 24 per cent.

Emerging markets driving rise of gold

THE notion that inflation is a fundamental driver of gold prices is a myth, according to a new study, which argues that the metal’s prospects are more likely to be driven by emerging markets.

The paper said gold would be priced around $780 if it moved in tandem with inflation over the last four decades. Instead it is twice that level.

While today’s price is “very high compared to historical standards”, it suggested it may rise further should prominent emerging markets increase their gold holdings to levels seen in developed economies.

The BRIC nations currently hold 2,457 tons of gold. If they targeted the same ratio of gold holdings relative to GDP as exists in the US that figure would rise by more than 150 per cent. The paper is at iti.ms/Mvmpyh