Fund managers fear 'stagflation'

13 April 2012

FUND managers are starting to panic about a return to 1970s-style 'stagflation' - the combination of rising prices and slow growth which blighted that miserable decade.

Every UK institutional investor surveyed by Merrill Lynch is predicting rising prices here. And since December the number expecting better profits from corporate Britain has halved.

Among fund managers worldwide, 86% fear higher prices in the year ahead. A majority believe central banks have been too slow to raise interest rates.

Meanwhile, they have turned bearish on the global economy and equities. Cash balances have risen sharply. Merrill's chief strategist David Bowers said: 'We have rarely seen such a divergent picture between growth and inflation expectations.'

Add in fears about Iraq and a Chinese slowdown, and they have quickly turned more bearish on emerging markets than at any time since 9/11. These were last year's must have assets.

Such extreme gloom is usually a good buying signal for brave private investors.

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