Gloomy outlook by fund bosses

FUND managers are less optimistic about the global outlook for corporate earnings and the strength of the recent stock market rebound, according to a monthly survey by Merrill Lynch & Co.

“Volatility of corporate earnings is going to increase,” said Merrill chief investment strategist David Bowers at a press briefing. “Equities are still seen as undervalued, but not as much as last month.”

World stock markets climbed during the past month, with the Dow Jones Industrial Average rising 6.3%, the German Dax Index surging 18%, and Britain’s FTSE 100 Index gaining 8.4%.

A net 53% of respondents expect corporate profits worldwide to increase during the next year, down from 58% last month and 67% in February.

About 33% said stocks are undervalued, compared with 39% last month.

Merrill surveyed 314 fund managers between April 3 and April 10, who oversee a combined $751 billion. Merrill added a new question to its monthly poll, about whether investors insured the currency risk of their dollar investments.

The US budget and current-account deficits meant 34% of respondents had insured, or hedged, some or all their dollar risk, Merrill found.

Twenty-two percent said they aren’t allowed to hedge.

“This year both the current-account and budget deficits could be as much as 5% of gross domestic product,’ Bowers said.

“That’s never known to be positive for a currency. The euro is the favorite investors’ currency followed by the yen and then the dollar.

A net 36% of participants said the dollar is overvalued, 21% said the yen is overvalued and 19% said the euro is undervalued.

Among other currencies, a net 19% said the pound is overvalued and 28% said the Swiss franc is overvalued. The survey was conducted just as the coalition troops entered Baghdad.