Gloomy predictions over corporate earnings are casting shadows over a renewed risk appetite by investors.
According to the Merrill Lynch's survey of fund managers for April, global stock markets added 5 per cent between its March and April surveys, however a net 38 per cent of fund manager surveyed expect corporate profits to deteriorate over the next 12 months.
A net 46 per cent of managers also said it was unlikely corporates would grow their profits by 10 per cent or more over the same timeframe.
"Pressure on companies to return cash to shareholders appears strong enough to justify a pro-equity stance," Merrill Lynch independent consultant David Bowers said.
"This could come from re-leveraging company balance sheets via share buy backs or company buy-outs. However this strategy might struggle in the event of an unexpected rise in credit spreads and higher borrowing costs."
There has also been a marked increase in fund manager predictions that global inflation will rise in the next twelve months with a net 27 per cent believing that global core inflation will rise, compared with 11 per cent in March and February.
A total of 214 fund managers participated in the global survey, managing a total of US$697 billion.
