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By Rich Miller Oct. 29 (Bloomberg) — An eight-month, 68 percent rally in global stocks failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about U.S. economic policies and its banking system. Only 31 percent of respondents to a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down. U.S. investors are even more cautious, with more than 50 percent saying they are in a defensive crouch. “The doubt and the pessimism just won’t go away,” says James Paulsen , who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “They’re still so shell-shocked by what they went through despite the improvement in the market and the economy.” Stock markets have slid in the past week after bounding higher since March as the economic outlook improved. The MSCI AC World Index of emerging and developed markets has risen by 68 percent since March. It fell 0.4 percent as of 1:30 p.m. in Tokyo, an eighth day of declines. The S&P 500 index, which has gained 54 percent since March, closed below its 50-day moving average level for the first time since July yesterday after a 2 percent drop. Worldwide, investors and analysts now view the U.S. as the weak link in the global economy, with its markets seen as among the riskiest by a plurality of those surveyed. One in four respondents expects an unemployment rate of 11 percent or more a year from now, compared with a U.S. administration forecast of 9.7 percent. The jobless rate now is 9.8 percent, a 26-year high. Dollar’s Decline The skepticism about the U.S. is taking a toll on the dollar, with a plurality of respondents saying it will weaken against most other currencies in the next year, the yen being the major exception among the 11 currencies tested. Thirty-seven percent say the dollar should not continue as the world’s reserve currency in 10 years. The yen fetched 90.32 per dollar as of 1:45 p.m. in Tokyo from 90.75 in New York. The poll is based on interviews conducted Oct. 23-27 with a random sample of 1,452 Bloomberg subscribers, representing decision makers in markets, finance and economics on six continents. It has a margin of error of plus or minus 2.6 percentage points. “The stock market has had quite a run since July when more Bloomberg customers thought the Standard & Poor’s 500 index would rally than predicted a downturn,” says J. Ann Selzer , president of Selzer & Co., the Des Moines, Iowa-based firm that conducted the polls. “That rally may have dampened views of what to expect next. They may also think that there are better markets now for investments than the U.S.” Emerging Markets Respondents see China, Brazil and India as the markets with the most potential, and commodities as the asset of choice, replacing stocks as the most desirable investment class in last quarter’s survey. Real estate and bonds are out of favor, with 40 percent saying bonds will have the worst returns over the next year. “Asia is the best place to put money as there are not mountains of consumer debt, bad mortgage lending, trade deficits or high unemployment,” says Peter J. Emblin , a fund executive at Thai Strategic Capital Management Co. in Bangkok who took part in the poll. Investors and analysts in Asia are the most bullish, while those in the U.S. are the most cautious. A majority of Asian investors expect their country’s benchmark stock index to rise while a plurality of U.S. and European respondents thought their benchmarks would fall in the next six months. Equity Rebound “A lot of people have been surprised by the speed of the equity rebound,” says Dan Greenhaus , chief economic strategist at Miller Tabak & Co. in New York, adding that the rally has probably been fueled by buying from hedge funds and traders. “It caught them off guard and they don’t believe it.” Fund manager Paulsen thinks the stock markets rose largely because of the disappearance of panicked sellers. “I don’t think the market has gone up because of heavy buying. You only need a little bit of buying when there are no sellers.” Asia’s optimism is understandable. The region is leading the global economy out of the worst recession since World War II, according to the Washington-based International Monetary Fund. The IMF said on Oct. 1 that the world economy will expand 3.1 percent next year after shrinking 1.1 percent this year, with China growing by 9 percent and India by 6.4 percent. Global investors and analysts agree that the world economy is on the mend. Almost 75 percent describe the global economy as stable or improving, up from just over 60 percent in July. Higher Rates The worldwide recovery is seen as pushing up long-term interest rates, with 55 percent of those surveyed forecasting higher rates in their respective countries in the next six months. As a result, only 9 percent surveyed thought bonds were the best place to invest over the next year, half the number who favored bonds in July. More than half of respondents see the yield on the 10-year Treasury note rising in the next half year, up from 47 percent in the July poll. In Asia, where some of the biggest holders of Treasury securities are located, led by China with almost $800 billion, investors are less convinced that yields will rise. Forty-five percent of those surveyed in the region think that. The yield on the 10-year note was little changed at 3.41 percent as of 1:45 p.m. in Tokyo today. Commodities are expected to benefit from an Asian-led worldwide economic expansion, according to the survey. More than one in three investors say commodities will offer the highest return over the next year. Oil, gold, copper, corn and soybean prices are all seen rising in the next six months. $100 Oil “It’s an emerging-market story,” says Matthew Johnson , director of interest rate strategy for UBS AG in Sydney and a poll participant. “It’s all about inelastic supply and fast- growing demand.” He sees oil prices rising to $100 per barrel in the coming months from around $77 now. China garnered the most votes from investors when they were asked to pick which one or two markets would offer the best opportunities over the next year. Brazil came in second, followed by India. By contrast, a majority of investors worldwide are pessimistic about the investment climate in the U.S. and the European Union, according to the poll, though the gloom about Europe was less pronounced than it was in July. Downside Risk “The U.S. market has the most downside risk in the coming year,” says Marty Beskow , a poll participant and portfolio manager for Blue Water Capital Advisors in Duluth, Minnesota, formed in January. “Although the U.S. may experience a quarter or more of growth, the driver is not real demand but rather stimulus from the Federal Reserve and government spending that is unsustainable.” Investors have turned more pessimistic about the U.S. government’s economic plan since the last poll, with more than 60 percent saying they feel that way, compared with 55 percent in July. Almost 20 percent expect U.S. banks to be in worse shape a year from now, about double the number who felt that way in July. Two in three say the banks will improve over the next year but will still have problems. Billionaire investor George Soros said on Oct. 5 in Istanbul that the U.S. recovery will be sluggish as “basically bankrupt” financial companies and indebted consumers impede it. Worldwide, investors see large budget deficits as the biggest threat to the U.S. economy over the next year. The deficit hit a record $1.4 trillion in the year ended Sept. 30. Persistently high unemployment is seen as the next biggest threat. More than three-quarters of respondents expect the U.S. unemployment rate to be 9.5 percent or more a year from now. Tax Increases Unlike investors elsewhere, those in the U.S. see higher taxes as the biggest danger. “The increase in taxes is going to slow the growth rate of our economy to below 2 percent for the next 25 years,” says Gary Singleterry , who participated in the poll and is president of Singleterry Mansley Asset Management in Summit, New Jersey, which manages about $200 million. Three-quarters of U.S. investors think the dollar should remain the world’s reserve currency over the next decade. No more than half their counterparts in Europe and Asia feel that way. “I heard a story the other day from an old French lady who was in her 100’s when she died,” says Ben Watson , director of quantitative analytics for RBS Group (Australia) Pty Limited in Sydney and a poll participant. “In the 1920’s she remembers the U.S. being an emerging market very much like China is today. The 19th century was the European century, the 20th was the American century and the 21st will be China’s century.” Click here for additional information on methodology and a full list of survey questions. To contact the reporters on this story: Rich Miller in Washington rmiller28@bloomberg.net