With inflation increasing and no imminent rise in interest rates expected, fund managers are being forced to buy equities, according to the latest global fund manager survey from Bank of America Merrill Lynch (BofAML).
Of the 287 institutional investors canvassed, a net 55 per cent say they are overweight in equities, which is the highest reading since July 2007.
This position is being driven by inflation and interest rate expectations. A net 72 per cent of respondents say they expect higher inflation over the next 12 months, and most think the US Federal Reserve will not raise interest rates until the first quarter of 2012.
‘Growth is higher and inflation is higher, but there has been no rise in rates so the only option is to hold risk assets – and that’s exactly what fund managers have done,’ said Gary Baker, head of European equity strategy at BofAML, at a press briefing this morning.
The current fondness for equities would be tempered by weaker economic or earnings data, or tighter monetary policy, according to the survey.
Of the world’s markets, the UK should perhaps be the most worried about interest rate rises, noted Baker.
Last week the Bank of England kept interest rates at 0.5 per cent, although there are fresh calls for rates to rise following the news today that inflation rose to 3.7 per cent in the UK in December.