Fund managers doubt analyst estimates

Oct 15, 2008

Q3 results will be ‘key’ for market, says expert

Fund managers have delivered a stinging verdict on the accuracy of analyst forecasts amid a rocky Q3 reporting season.

Respondents to Merrill Lynch’s monthly survey of asset managers, released today, put little faith in earnings estimates for the next year, with 92 percent regarding forecasts as ‘too high’ and more than half saying they are ‘far too high’.

The survey results come after PepsiCo and Philips Electronics both missed analyst estimates this week. ‘We’ve seen over the past few days – with PepsiCo and Philips – that even though markets think they can factor this in, when reality hits and companies warn on profits, share prices still get hit quite hard,’ said Gary Baker, head of EMEA equity strategy at Merrill Lynch, at a press briefing this morning. 

‘I think the Q3 earnings/results season is going to be a key one. I think there is going to be very little guidance from companies, so it is going to be a very volatile period to digest for markets.’

The survey offers some hope for IROs who have watched global stock markets fall dramatically over the last few weeks. A record 49 percent of respondents are overweight in cash, while respondents who think equities are undervalued number a decade-long high of 43 percent, offering hope a rally is near.

‘You’ve got this combination of cash on the sidelines, pessimism and some belief that value is emerging,’ commented Baker. ‘That hopefully sows some seeds for optimism.’

He added that markets will have to feel comfortable about earnings estimates and monetary policy will need to loosen before fund managers jump back into equities.  

By Tim Human