By Vicki Schmelzer

NEW YORK (MNI) - Most fund managers expect the Federal Reserve to refrain from raising U.S. interest rates until the second half of 2010, according to the November Bank of America/Merrill Lynch fund managers' survey released Wednesday.

"Asked when they think the Fed will first increase rates, more than three quarters of the panel predict the second half of 2010 or beyond. One in six respondents believes the Fed will not act before 2011," the survey said.

Regarding inflation, a net 47% of those polled look for global core inflation to be higher in 12 months, up from 39% in October and the highest reading since July 2007.

"However, only five percent of investors see inflation as a 'lot' higher 12 months out, so some perspective is still required," the survey said.

Two-thirds of portfolio managers surveyed this month saw existing monetary policy as "about right."

The BAS/Merrill survey noted that global investors have been looking for assets that protect against inflation, with solid demand seen in gold, oil and emerging market equities.

"A net 25% of the panel is overweight commodities, up from 11% in October" while "a net 53% of the panel is overweight emerging market equities, up from a net 46% in October," the survey said.

In terms of cash positioning at the global level, cash balances remained at 3.7% in November, unchanged from October and down from 4.1% in September.

The proportion of investors overweight cash held steady at +5.0% this month, after falling sharply in October from September's +18.0%.

Portfolio managers remained optimistic about stocks, with a net 37% overweight global equities in November versus 38% in October, which was the highest reading since October 2007 and up from 27% in September.

A net 31% of fund managers were underweight bonds in November, down from -23% in October and the lowest level since April 2008.

In alternative instruments, a net 25% of managers were overweight commodities, up from +11% in October.

"Rising inflation expectations and a renewed belief in China growth presumably lies behind the move," the survey said.

A net 25% of fund managers viewed gold as overvalued, up from 11% in October, but still shy of the roughly 29% seen in May 2008, when gold peaked around $900.00 (versus then life-time high of $1030.80 seen in March 2008)

In terms of global allocation, a net 10% of those polled this month were overweight the U.S., up from a 2.0% underweight in October.

A net 30% of fund managers were underweight Japan versus -24% in October, and a net 13% of managers were overweight the eurozone vs +11% last month.

Global emerging markets remained hot in November, with investor optimism rising to a new high of +53.0 from +46% in October.

"Interesting, it is high beta markets such as Russia and China that are the preferred country plays within GEM," the survey said.

A net 22% of portfolio managers viewed the eurozone as the most under-valued region on a 12-month view, but "are unsure whether they want to be overweight the coming 12 months, perhaps due to currency concerns."

On the FX front, a net 36% of those polled viewed the dollar as undervalued, compared to -1% in October. The dollar has fallen another 5% over the survey period.

Nevertheless, global investor sentiment remained "some way above the -50%, which coincided with the last significant rally in the dollar."

A net 49% viewed the euro as overvalued in November, up from +44% in October.

"Despite seeing euro-dollar as overvalued however, panelists are evenly split on whether the currency will actually depreciate over the next 12 months," BAS/Merrill said.

A total of 218 global managers, with $534 billion in assets under management (AUM) responded to the global survey taken November 6-12.

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[TOPICS: M$$FX$,M$U$$$,MN$ME$]