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Investment: Investor expectations take a nosedive

Investors' expectations
Investors expect corporate
profits to...

Investor sentiment has soured dramatically over the past two months, with more fund managers now expecting growth to slacken and corporate profits to fall. A Merrill Lynch survey of 300 fund managers indicates that a net 32% are now negative about growth prospects and that a net 34% are negative about the corporate profit outlook, a significant turnround from March when investors were positive about growth and corporate profits by a net 11% and 4% respectively. Expectations have not been this low since 2001.

"Over the past two months there has been an astonishing change in how investors see the world," says David Bowers, chief global investment strategist at Merrill Lynch. "The three pillars that underpinned the bull case for equities – the assumption that risk was correctly priced, that we were in a reflationary environment and that bonds were expensive and equities cheap – are being tested."

Forty per cent of fund managers now expect corporate margins to fall, and 20% expect zero or negative earnings per share growth in the year ahead.

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