America is lone bright spot

Fund mangers see potential in US market as rest of the world deteriorates as per this Telegraph article.

Fund managers across the world are dumping stocks and retreating to cash in a mood of extreme pessimism, fearing that the looming economic crunch is an even greater threat than inflation.

The latest survey of investors by Merrill Lynch shows that an unprecedented 41pc now think that a world recession is either likely or very likely. The majority dismiss hopes of double-digit earnings growth next year as "fantasy".

"People are a lot more scared about the macro-outlook. The survey has never seen anything like this before since it began a decade ago," said David Bowers, the organiser of the report.

"Recession risk has taken over from inflation risk. Fund managers believe the global economy is deteriorating so fast that a wage-spiral is never going to happen, at least in developed markets," he said. The survey is based on 191 funds managing assets worth $610bn (£305bn).

The US is emerging as the one bright spot in the global gloom, despite the credit mayhem. A net 7pc of investors are overweight in US equities, clearly betting that most of the bad news is already in Wall Street prices. The figure was negative in May.

With the tailwind of 2pc interest rates and a cheap dollar, America stands to benefit from the "first-in, first-out" principle. Others have yet to take their full punishment from the cycle.

"The US has now become the country of cheap manufacturing. You've got 20pc wage inflation in emerging markets so FDI (foreign direct investment) is flowing back there," said Karen Olney, Merrill's chief European equity strategist.