GLOBAL

   16 November 2004                            Global
                                               Fund Manager ...
Global Fund Manager Survey – 16 November 2004


                                                                          ...
Global Fund Manager Survey – 16 November 2004




                               CONTENTS
                  n Section     ...
Global Fund Manager Survey – 16 November 2004



                                            2. Dare to be Different!
    ...
Global Fund Manager Survey – 16 November 2004



                                3. Profit Expectations
                  ...
Global Fund Manager Survey – 16 November 2004



                                             Table 5: At This Time, Do Yo...
Global Fund Manager Survey – 16 November 2004



                                   Table 8: What Do You See as the Most P...
Global Fund Manager Survey – 16 November 2004



                                             4. Interest Rate Prospects
 ...
Global Fund Manager Survey – 16 November 2004



                                   Table 13: Do you think the next move i...
Global Fund Manager Survey – 16 November 2004



                                   5. Equity Valuation
                  ...
Global Fund Manager Survey – 16 November 2004


                                 Chart 9: Equity Valuation vs Bond Market ...
Global Fund Manager Survey
Global Fund Manager Survey
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Global Fund Manager Survey
Global Fund Manager Survey
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Global Fund Manager Survey
Global Fund Manager Survey
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Global Fund Manager Survey
Global Fund Manager Survey
Global Fund Manager Survey
Global Fund Manager Survey
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Global Fund Manager Survey

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Global Fund Manager Survey

  1. 1. GLOBAL 16 November 2004 Global Fund Manager Survey Putting Liquidity to Work Contributors Highlights of this Issue David Bowers Risk Appetite Responds Favorably to an End to Election Uncertainty Chief Investment Strategist Risk appetite has improved. The swift and uncontested result from the US +44 20 7996 2468 Presidential election has removed a significant source of uncertainty from the david_bowers@ml.com markets. The net percentage of fund managers taking lower-than-normal risk fell from 16% in October to 8% in November. Investors seem to have responded positively to the continuity that a Bush victory appears to provide. Sarah Franks Strategy Analyst Liquidity Levels Remain Above-Normal +1 212 449 6601 Liquidity levels remain high. Average cash levels in our November poll stood at sarah_franks@ml.com 4.6% (up from October’s 4.4%). This is the third highest reading that we have recorded this year. The net percentage of the panel ‘overweight cash’ came in at 13%, down from 18% recorded in October, but is still consistent with excess liquidity. History suggests a neutral cash position is one where cash levels are a full percentage point lower than they are today. Net new inflows to equity funds have also stabilized in recent months, although they have a long way to go to get back to the levels seen at the start of this year. Global Growth Worries Persist, But Investors Adamant Bonds are a Sell The combination of reduced uncertainty and an improvement in risk appetite means that fund managers are increasingly under pressure to put that cash to work. There is still not much of a ‘growth’ case for equities – for the fourth month running more fund managers think that economic growth is likely to deteriorate than improve. But when managers compare the valuation of equities versus bonds there is simply no comparison. Liquidity looks more likely to find its way into equities more because of a bear case on bonds than a bull case on equities. A net 75% of our panel believe that bond yields will be higher a year from now. Bonds are increasingly seen as overvalued. 66% of our panel believe bonds to be overvalued (i.e. yields are too low), while only 3% of managers believe them to be undervalued (i.e. yields are too high). In contrast, only 14% of the panel believe equities to be overvalued, while 24% believe them to be undervalued. With bonds widely seen as overvalued, and equities seen as undervalued, it is no surprise that asset allocators are overweight equities, and underweight bonds. Institutional investors have maintained a cyclical bias. Asset allocators continue to favor Global Emerging Market (GEM) and Japanese equities at the expense of the UK and US markets. They also favor sectors with an upstream, industrial bias (energy, materials, and industrials). At the same time they also like the cash- generative characteristics of the telecoms sector. The least-liked global sectors include the consumer-discretionary plays as well as the utilities and consumer staples. The ‘cheapest’ global sector continues to be pharmaceuticals. Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 32. Analyst Certification on page 32. Global Securities Research & Economics Group RC#40432102 Global Fundamental Equity Research Department
  2. 2. Global Fund Manager Survey – 16 November 2004 4. Bonds increasingly seen as overvalued. 66% of our 1. Survey Sound Bites panel believe bonds to be overvalued (i.e. yields are This month’s survey provides one of the first snapshots of too low), while only 3% of managers believe them to fund-manager sentiment and positioning post the US be undervalued (i.e. yields are too high). In contrast, Presidential election. The survey opened immediately only 14% of the panel believe equities to be after the release of the U.S. non-farm payroll numbers overvalued, while 24% believe them to be (5th November), and continued through November 11th. undervalued. With bonds widely seen as overvalued, The Fed raised interest rates towards the end of the and equities seen as undervalued, it is no surprise that fieldwork, which means that some of the interest-rate asset allocators are overweight equities, and related questions may have to be interpreted with caution. underweight bonds. 5. Institutional investors are content to maintain a Table 1: Markets Between Fieldwork Periods cyclical bias. Asset allocators continue to favor Fieldwork Dates 5/11-11/10 8/10-14/10 3/9-9/9 5/8-12/8 Global Emerging Market (GEM) and – to a lesser change from last month: extent – Japanese equities at the expense of the UK World Equities (%) 4.6 1.7 3.7 -4.1 and US markets. Despite George Bush’s re-election, Dow Jones (%) 3.8 -2.6 4.2 -3.6 asset allocators and fund managers have retained one US 10-Year (bps) 13 -15 -4 -19 of the most widespread underweightings of US Commodities (%) -0.5 4.9 1.5 -0.8 equities in the past five years. But, the equity region Trade Weight Dollar (%) -4.0 -1.6 -0.2 0.9 this month that is most in favor with investors is the Source: Datastream eurozone, with a net overweight balance of 42%. Here are the highlights of the survey in greater detail: 6. Global investors continue to favor sectors with an 1. Risk appetite has improved. The swift and upstream, industrial bias (energy, materials, and uncontested result from the US Presidential election industrials). At the same time they clearly like the has removed a significant source of uncertainty from cash-generative characteristics of the telecoms sector the markets. The net percentage of fund managers – which comes second in preference only to energy. taking lower-than-normal risk fell from 16% in Least liked are global consumer discretionary (net October to 8% in November. Investors seem to have underweights on autos, retail and media). There is responded positively to the continuity that a Bush also little appetite to get more defensive (neutral victory appears to provide. And we know from our pharma, and net underweight utilities and staples). As recent surveys that investors would not have for valuation, technology continues in a league of its welcomed a Kerry victory. own as the sector that investors think is most overvalued (though they are quite prepared to punt 2. Liquidity levels remain high. Average cash levels in the sector whenever they feel a bit of beta is needed). our November poll stood at 4.6% - up from October’s Interestingly, some of the defensive sectors are seen 4.4% - and the third highest reading that we have as overvalued, such as consumer staples and utilities. recorded this year. The net percentage of the panel For value, our panel recommends looking at ‘overweight cash’ came in at 13%, down from 18% pharmaceuticals and insurance. recorded in the previous month. History tells us that a truly neutral cash position would be one where cash 7. USD and GBP still perceived as overvalued, while levels are a full percentage point lower - see Chart JPY and emerging-market currencies seen as 17. Not only are cash levels still above-normal, but most undervalued. This picture was broadly net new inflows to equity funds have also stabilized confirmed when we asked the global asset allocators in recent months, although they have a long way to in our panel, whether they currently had any go to get back to the levels seen at the start of this unhedged currency exposure. A net 28% of them year. were underweight the dollar, while a net 28% were overweight the euro. This would be consistent with 3. The combination of reduced uncertainty and an the net preference for Eurozone equities over US improvement in risk appetite means that fund equities - historically the US- Europe call has in managers are increasingly under pressure to put effect been a currency call – and this is no exception. that cash to work. There is still not much of a ‘growth’ case for equities – for the fourth month 8. Almost half our panel (45%) still want companies running more fund managers think that economic to return cash flow to shareholders, rather than growth is likely to deteriorate than improve. But use it to grow the business. This is encouraging when managers compare the valuation of equities companies to re-lever their balance sheets, by issuing versus bonds there is simply no comparison. That debt to buy back equity. Companies that continue to cash looks more likely to find its way into equities de-lever, to rebuild balance sheets are being more because of a bear case on bonds than a bull case increasingly shunned. History suggests that the on equities. A net 75% of our panel believe that bond financial characteristics least in demand today often yields will be higher a year from now. come back in the rotation of tomorrow. 2 Refer to important disclosures on page 32.
  3. 3. Global Fund Manager Survey – 16 November 2004 CONTENTS n Section Page Editorial 1 Key Highlights from the Survey 2 Dare to be Different! 2 Your Checklist – How Consensus Are You? 4 Profit Expectations 3 Economic Cycle Phase and Growth Expectations; Commodity Prices, 5 EPS Estimates; Demands on Cash Flow; Contributors to Earnings Interest Rate Prospects 4 Expectations for Inflation; Assessment of Interest Rates; Outlook for 8 Bond Yields; Expectations of Fed Policy; Neutral Fed Policy Equity Valuation 5 Investment Cycle Phases; Valuation of Global Equities and Bonds; 10 Investing Time Horizons; Small-Caps vs Large-Caps; Risk Appetite Measures of Risk 6 Equity Risk Premium; Investing Time Horizons; Small-Caps vs Large- 12 Caps; Risk Appetite Cash Positions 7 Overweight / Underweight vs Benchmark and Absolute Cash Positions; 13 Cash by Fund Type; Fund Inflows Regional Preferences 8 Profit Outlook; Earnings Quality; Equity Valuation; Regional Rotation 15 of Five Regions; Most and Least Favorite Currency China 9 Growth and Inflation Outlook for China; Currency Valuation 17 Assessment Sectors 10 Sector Positioning and Valuation; Sector Position and Relative 18 Performance Asset Allocation 11 Equity Weightings; Bond Preferences; Return on Assets; Equity Risk 23 Premium; Asset Positioning; Equity Market Positioning; Currency 12 Currency Valuation, Currency Hedging 27 Demographics 12 The Composition of Our Panel 31 Equity vs Debt Investors 13 Comparing Equity Fund Managers’ and Debt Fund Managers’ 30 Assessment of Bond Valuation and Interest Rate Expectations Refer to important disclosures on page 32. 3
  4. 4. Global Fund Manager Survey – 16 November 2004 2. Dare to be Different! Every month we contact around 300 fund managers from around the world. We ask them what they think about the macro outlook and how they have positioned their investment portfolios. This table summarizes some of their most commonly held views. As you go through the list, you might like to examine how different you are from the consensus by ticking one of the two columns. Table 2: How Different Are You from Consensus? I Agree I Disagree This Month, Fund Managers and Asset Allocators . . . 1 Increasingly see the global economy as being mid-cycle o o 2 Think the global economy will weaken over the next year o o 3 Believe the global economy is operating with a negative output gap o o 4 See the profit outlook as weakening over the next year o o 5 Expect about 6% earnings growth over the next year o o 6 Think higher volumes will drive earnings growth over the next year o o 7 Want corporate cash flow to be returned to shareholders rather than used for capex o o 8 Expect core consumer price inflation to be higher a year from now o o 9 Cite commodities as the most important factor influencing inflation, followed by wages o o 10 Think global monetary policy is too stimulative o o 11 Expect global short-term interest rates to be higher in 12 months time o o 12 Think that global bond yields will be higher a year from now o o 13 Expect the Fed to raise rates within three months, and think 3% is a neutral rate o o 14 On balance see equities as undervalued o o 15 Think that bond markets are overvalued o o 16 Prefer large-caps to small-caps o o 17 Use an equity risk premium of 3.7% o o 18 Have investing time horizons that are shorter than normal o o 19 Are taking lower-than-normal levels of risk in their portfolios o o 20 Are overweight cash, with balances of around 4.6% in portfolios o o 21 Report net cash inflows to the funds they manage o o 22 Think Emerging Markets have the best profit outlook. o o 23 Think US equities have the least favorable profit outlook. o o 24 Think US and UK equities are the highest quality o o 25 See the most value in GEM and Eurozone equities o o 26 Think the Yen will appreciate the most over the next 12 months o o 27 Would overweight GEM and underweight the U.S. over the next year o o 28 Expect China’s economy to be weaker in a year’s time o o 29 Think China’s inflation will rise over the next year o o 30 See the RMB as overvalued o o 31 Are most overweight the energy sector o o 32 Are most underweight Autos, Retailers and Staples o o 33 Think Tech is the most overvalued sector, and pharma is the most undervalued o o 34 Think Utilities are overvalued o o 35 Do not expect corporate bonds to outperform governments o o 36 Are overweight equities and underweight bonds o o 37 Are most overweight Eurozone equities o o 38 Are most underweight US equities o o 39 See the US$ and GBP as the most overvalued currencies o o 40 Have the most unhedged currency exposure to the Euro o o 4 Refer to important disclosures on page 32.
  5. 5. Global Fund Manager Survey – 16 November 2004 3. Profit Expectations Table 3: At This Time, in Which Phase of the Economic Cycle Would You Say the Global Economy is? 50% think the economy is “mid- % saying: Nov Oct Sep Aug cycle”; while 44% see it as Early-cycle 4 4 5 5 “late-cycle” Mid-cycle 50 52 59 57 Late-cycle 44 41 34 34 Recession 0 1 0 1 Where Are We (In Terms of Degrees*) 215 O 207 O 205 O 197 O Don’t know 1 2 2 3 * To track how managers think we are progressing through the economic cycle, we’ve expressed their answer as if positioned on a circle. We have positioned “recession” at 0O, “early cycle” at 90O, “mid-cycle” at 180O and “late cycle” at 270O and calculated an overall position from those four locations. Chart 1: Phases of the Global Economic Cycle, In Degrees* May This chart tracks, in “degrees”, Mar Apr Jul Jul Aug how managers’ assessment of Feb M Sep Oct Nov where we are in the economic i cycle has changed over time. d When we asked in February, the C answer was firmly in “early- y cycle” range; it is now into mid- c cycle l e Early Cycle Late Cycle R e c e s s i o n * To track how managers think we are progressing through the economic cycle, we’ve expressed their answer to the question above as if positioned on a circle. We have positioned “recession” at 0O, “early cycle” at 90O, “mid-cycle” at 180O and “late cycle” at 270O and calculated an overall position from those four locations. This chart tracks how managers’ views of where we are in the cycle has changed this year – there’s been a steady climb upward from “early-cycle” to “mid- cycle”. Table 4: How do You Think the Global Real Economy Will Develop Over the Next 12 Months? % saying: Nov Oct Sep Aug A net 17% of managers expect Get a Lot Stronger 1 1 1 2 the global economy to weaken Get a Little Stronger 31 29 32 31 over the next year Stay the Same 18 15 19 14 Get a Little Weaker 46 51 43 48 Get a Lot Weaker 3 4 4 5 Net % Expecting Stronger Economy -17 -25 -14 -19 DK/Refused 0 0 0 0 Refer to important disclosures on page 32. 5
  6. 6. Global Fund Manager Survey – 16 November 2004 Table 5: At This Time, Do You Think the Global Economy is Operating … 43% think the global economy % saying Nov Oct Sep Aug has a negative output gap, 25% With a positive output gap (i.e. output above its long- term sustainable growth path) 24 29 25 29 see no output gap With a negative output gap (i.e. output below its long- term sustainable growth path) 43 41 42 42 With a zero output gap (i.e. output in line with its long- term sustainable growth path) 25 25 28 22 Net % See a Positive Output Gap -19 -12 -17 -13 Don’t know 8 6 5 7 Chart 2: Expectations for Economic Growth vs Expectations for Inflation inflation expectations 100 100 A tick up in growth and 80 80 inflation expectations 60 60 40 40 20 20 0 0 -20 -20 -40 -40 -60 -60 economic expectations -80 -80 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 % Stronger Economy % Higher Inflation Source: DATASTREAM Table 6: Over the Next 12 Months, Do You Think the Outlook for Corporate Profits World-Wide Will … A net 9% think the global profit % saying: Nov Oct Sep Aug Improve Strongly 1 0 2 2 environment is deteriorating Improve Slightly 38 31 35 30 Remain Unchanged 12 13 16 17 Deteriorate Slightly 44 50 38 45 Deteriorate Strongly 4 4 8 6 Net % Expecting Corporate Profits to Improve -9 -23 -9 -18 DK/Refused 1 1 1 1 Chart 3: Profit Expectations and EPS Forecasts Table 7: What is Your % Forecast 100 11-15-04 14 for Global EPS Growth Over the Investors look for just under 6% eps growth Next 12 Months? 80 12 % saying: Nov Oct Sep 60 Minus 25% or less 0 0 0 10 40 Minus 20% 1 0 0 Minus 15% 1 0 1 20 8 Minus 10% 2 3 3 0 6 Minus 5% 5 8 5 Zero 4 4 5 -20 4 Plus 5% 37 42 33 -40 Plus 10% 39 31 37 2 Plus 15% 4 4 9 -60 Plus 20% 0 0 1 -80 0 Plus 25% or more 0 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Net % Expecting Profit Outlook to Improve Average EPS % 5.9 5.4 6.5 12-mth eps growth est %(R.H.SCALE) Source: DATASTREAM DK / Refused 6 7 7 6 Refer to important disclosures on page 32.
  7. 7. Global Fund Manager Survey – 16 November 2004 Table 8: What Do You See as the Most Positive Contributor to Global Corporate Earnings Over the Next Twelve Months? % saying: Nov Oct Sep Aug Higher Volumes 44 44 49 43 Higher Selling Prices 24 22 23 28 Lower Costs 26 26 21 23 DK/Refused 6 9 7 6 44% of managers think higher Chart 4: What’s the Most Positive Contributor to Earnings Over the Next Twelve Months? volumes will drive earnings growth 80 70 “Lower costs” as a driver of higher volumes earnings has overtaken “higher 60 selling prices” 50 higher selling prices 40 lower costs 30 20 10 0 Sep-02 Sep-03 Sep-04 Mar-03 Mar-04 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 45% of the panel want Table 9: What Would You Most Like to See Companies Doing With Cash corporate cash returned to Flow at the Current Time? % saying: Nov Oct Sep Aug shareholders Increase capital spending 32 26 30 31 Improve balance sheets (e.g. repay debt, top up company pension plan) 20 24 21 26 Return cash to shareholders (increased share buybacks / dividends) 45 46 46 41 Don’t Know / Refused / Other 3 4 3 2 Chart 5: What Would You Most Like to See Companies Doing With Cash Flow? 60 return cash to shareholders increase capex 50 40 30 20 10 rebuild balance sheets 0 Oct-02 Dec-02 Oct-03 Dec-03 Oct-04 Jun-02 Jul-02 Aug-02 Sep-02 Jan-03 Feb-03 Mar-03 Apr-03 Jun-03 Jul-03 Aug-03 Sep-03 Jan-04 Feb-04 Mar-04 Apr-04 Jun-04 Jul-04 Aug-04 Sep-04 Nov-02 May-03 Nov-03 May-04 Nov-04 Refer to important disclosures on page 32. 7
  8. 8. Global Fund Manager Survey – 16 November 2004 4. Interest Rate Prospects Chart 6: Expectations for Inflation and Assessment of Interest Rates Table 10: Inflation & Monetary higher inflation 100 100 Policy % saying: Nov Oct Sep 80 80 In 12m, A Lot Higher 1 3 4 60 60 Will Slightly Higher 67 65 67 Global Unchanged 19 19 18 Core 40 40 Inflation Slightly Lower 11 11 10 Be... A Lot Lower 0 1 0 20 20 Net % Saying Higher 50 57 57 0 0 Do You Too Think Stimulative 37 44 43 -20 -20 Global About Right 57 51 51 Monetary Too -40 monetary policy -40 Policy is... Restrictive 4 1 4 assessment Net % Saying Too -60 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 -60 Stimulative 27 33 42 Net % Expecting Higher Inflation Net % Saying Global Monetary Policy Too Stimulative Source: DATASTREAM Chart 7: Outlook for Rates Table 11: Outlook for Rates 100 75% expect long rates 11-15-04 100 % saying: Nov Oct Sep to rise 80 80 In 12 A Lot Higher 10 11 18 Months, Slightly 60 60 Will Short- Higher 80 81 76 Term Unchanged 6 5 6 40 40 Interest Rates Be... Slightly Lower 4 2 1 20 20 A Lot Lower 0 1 0 0 0 Net % Saying Higher 85 81 90 In 12 A Lot Higher 15 9 9 -20 -20 Months, Slightly -40 85% think short rates -40 Will Long- Higher 67 69 64 will be higher in a year Term Unchanged 12 13 15 -60 -60 Interest Slightly Lower 6 7 11 Rates Be... A Lot Lower 1 1 1 -80 -80 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Net % Expecting Short-Term Rates to be Higher in 12 Months Net % Expect Higher 75 65 70 Net % Expecting Long-Term Rates to be Higher in 12 Months Source: DATASTREAM Table 12: Which one of the following factors is most responsible for your expectations of core inflation? Of managers expecting % saying: Of Managers Expecting Higher Inflation: Nov Oct Sep Aug higher inflation, the most Total % Saying Inflation Will Be “Slightly” commonly cited driver is or “A Lot” Higher: 68 63 68 71 commodity prices Commodities 33 39 30 34 Wages 20 12 23 19 Productivity 8 7 9 8 Profit margins 4 2 3 3 None of the above 3 3 2 6 Don’t know 1 1 1 1 8 Refer to important disclosures on page 32.
  9. 9. Global Fund Manager Survey – 16 November 2004 Table 13: Do you think the next move in Fed Funds will be up or down? A net 96% think the next move % saying: Nov Oct Sep Aug in Fed funds is up Up 97 95 98 98 Down 1 1 0 0 Net % Saying Up 96 94 98 98 DK/Refused 2 4 2 2 Table 14: And when do you expect this move by the Fed? The majority of investors think the Fed will raise rates within % saying: Nov Oct Sep Aug three months Total % Expecting Next Move to be Up 97 95 98 98 In 3 months’ time or less 91 78 83 85 In 6 months’ time 5 16 11 9 In 9 months’ time 0 0 1 2 In 12 months’ time or more 0 0 0 0 Don’t Know / Refused 0 1 1 1 Average time from now (in months) 3 4 3 3 Table 15: At this time, what do you consider to be a neutral Fed Funds rate (i.e. one that is neither stimulative nor restrictive)? % saying: Equity Fund Managers Fixed Income Fund Managers* Both equity and debt fund 1% or less 0 0 managers think 3% is a 2% 20 20 3% 52 47 “neutral” Fed rate 4% 21 30 5% 4 2 6% or more 0 0 "Neutral" Fed Funds Rate 3.1 (3.0% last month) 3.1 (3.1% last month) Don’t know 3 1 * Results from the Merrill Lynch FX & Debt Investor Survey Refer to important disclosures on page 32. 9
  10. 10. Global Fund Manager Survey – 16 November 2004 5. Equity Valuation Table 16: Do You Think Global Equity Markets are Currently . . . % saying: Nov Oct Sep Aug On balance, a net 10% think Overvalued 14 16 16 17 global equities are Fairly Valued 60 56 54 54 undervalued... Undervalued 24 26 28 28 Net % Saying “Overvalued” -10 -10 -11 -11 DK/Refused 2 2 2 1 Table 17: If You Think Global Equity Markets are Over or Undervalued, by About How Much Would You Say? % saying: Nov Oct Sep Aug More than 25% overvalued 1 2 1 2 20% overvalued 2 1 2 3 15% overvalued 3 2 3 2 10% overvalued 5 6 7 5 5% overvalued 2 4 2 4 ...But in percentage terms, Fair Value 60 56 54 54 equities are only 1% below 5% undervalued 6 4 5 4 fair value 10% undervalued 13 15 15 16 15% undervalued 5 7 7 6 20% undervalued 0 1 1 2 More than 25% undervalued 0 0 0 0 Mean Deviation from Fair Value (%) -1 -1 -1 -1 DK/Refused 2 4 2 5 Chart 8: Equity Valuation and Mean Deviation of Equities from Fair Value 11-15-04 50 12.50 40 Equities as 10 30 undervalued 20 5 10 0 0 -10 -20 -5 -30 -40 -10 1998 1999 2000 2001 2002 2003 2004 2005 Net % Think Global Equities are Overvalued %Dev. from Fair Value(R.H.SCALE) Source: DATASTREAM Equities seen at fair value, but 66% Table 18: Do You Think Global Bond Markets are Currently . . . think bonds are overvalued % saying: Nov Oct Sep Aug Overvalued 68 58 58 54 (to see what fixed income Fairly Valued 26 34 31 36 managers think see the last pages) Undervalued 3 3 5 6 Net % Say Overvalued 66 55 52 49 DK/Refused 3 6 6 5 10 Refer to important disclosures on page 32.
  11. 11. Global Fund Manager Survey – 16 November 2004 Chart 9: Equity Valuation vs Bond Market Valuation 11-15-04 75 75 60 Bonds seen as expensive 60 40 40 20 20 0 0 -20 Stocks seen as undervalued -20 -40 -40 -50 -50 1998 1999 2000 2001 2002 2003 2004 2005 Net % Think Global Equities are Overvalued Net % Think Bonds are Overvalued Source: DATASTREAM Chart 10: Equity Valuation and Net % of Managers Overweight Cash 10 M a r-0 4 5 J a n -0 2 F e b -0 4 A p r-0 2 M a y -0 2 A p r-0 4 J u l-0 4 M a y -0 4 0 D e c -0 3 J a n -0 4 S e p -0 3 A u g -0 3 N o v -0 31 0 J u n -0 4 -5 0 5 M a r-0 2 D e c -0 1 1 5 20 25 30 35 40 45 -5 J u l-0 3 F e b -0 2 J u n -0 1 O c t-0 3 J u n -0 3 O c t-0 4 -1 0 S e p -0 4 N o v -0 4 J u l-0 1 A u g -0 4 M a y -0 1 <- Undervalued // Overvalued -> A u g -0 1 -1 5 J u n -0 2 N o v -0 1 -2 0 D e c -0 2 M a y -0 3 -2 5 J a n -0 3 S e p -0 1 N o v -0 2 S e p -0 2 J u l-0 2 O c t-0 1 -3 0 A p r-0 1 A p r-0 3 O c t-0 2 A u g -0 2 -3 5 F e b -0 3 M a r-0 3 -4 0 -4 5 < - U n d e r w e ig h t C a sh // O v e r w e ig h t C a sh - > Table 19: In the Current Environment, Do You Prefer Large-Cap or Small Cap Stocks? % saying: Nov Oct Sep Aug Large-Cap 54 62 61 65 Large-caps preferred by a wide Small-Cap 13 9 8 9 margin to small-caps No Preference 28 25 26 22 Net Preferring Small Caps -41 -52 -53 -56 DK/Refused 5 4 5 5 Chart 11: Net % Preferring Small Caps and Relative Performance 11-15-04 10 0.16 0.15 0 0.14 -10 0.13 -20 0.12 -30 0.11 -40 0.10 -50 -60 0.09 2001 2002 2003 2004 NET % PREFERRING SMALL CAPS OVER LARGE CAPS SMALL CAPS REL TO WORLD(R.H.SCALE) Source: DATASTREAM Refer to important disclosures on page 32. 11

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