Money managers expect a dip in corporate profits in the next 12 months as confidence continues to drop, according to the Bank of America Merrill Lynch July Survey of Fund Managers.
A net 38% of respondents think corporate profits will worsen in the next year, a 39-percentage-point drop in the last two months, while confidence that corporations can grow profits by 10% or more is at its lowest point since April 2009.
A net 69% expect profits to be below 10%.
However, macroeconomic outlooks and risk appetite stabilized in July after two months of sharp decline. A net 13% said the world economy will weaken in the coming year, a drop of two percentage points from June.
Eurozone concerns have spread to core countries Germany and France, while fears that Spain or Portugal will have a “negative surprise” fell in July. Confidence in Greece has worsened as only 37% of respondents think it will avoid exiting the eurozone, down from 44% in June. Also, a net 32% hope for a “positive surprise” from Ireland this year, up from 16% in June. But a net 32% see a risk of a “negative shock” around Germany's economy, up from 10% in June, and 55% believe the French economy could present a negative surprise this year. A net 61% predict worsening corporate earnings in Europe, double the June results.
In the U.S., the number of investors overweight in domestic equities and technology holdings are dropping. A net 22% of U.S. respondents are overweight technology, down from a net 41% in June. About 19% are underweight, up from 9%. U.S. equity allocations are also falling as a net 14% are overweight U.S. equities, down from 31% last month.
A total of 261 money managers with $708 billion in assets under management participated in the survey conducted July 6-12.