(July 15, 2013) — Global investment managers remain broadly positive about the economic outlook, but the bullish feelings about the US from the first quarter have waned, according to a Northern Trust survey.
The financial firm quizzed 100 investment managers on their views of the macro-economic climate and how different geographical sectors were set to perform, and found sentiment on the US had fallen slightly.
While most believed the US house prices, employment figures and economic growth would all improve over the next three to six months, fewer believed we will see an accelerated improvement, opting for slow, measured progress instead.
In addition, 62% of investment managers believe US interest rates will rise over the next quarter, and a change in the Fed’s quantitative easing policy is considered the biggest risk to equities over the next six months.
One knock-on effect of this is that almost two-thirds (63%) of managers believe market volatility, as measured by the Chicago Board Options Exchange’s Volatility Index (VIX), will increase over the next six months, up from 49% in the last quarter.
Despite this, there remains a strong sense of optimism for the US market, with 77% of managers believing US equities are appropriately or undervalued at present.
Investor sentiment on Europe has vastly improved over the last quarter: In March just 36% of managers believed European equities were undervalued but by July that figure had risen to 59%. Just 9% of managers believed European equities were over-valued, down from 26% last quarter.
And the European debt crisis is no longer the top concern for investment managers, falling to the fifth-ranked concern in July. The top issues posing risk to equity markets are now:
1) The changing US monetary policy/QE tapering
2) Rising US interest rates
3) US economic slowdown
4) US corporate earnings decline
The improvement in feeling around US and European equities has tempered passions for emerging markets. Managers were almost evenly split, with 51% thinking emerging market equities would outperform developed equities, and 49% disagreeing.
With Japan, just 48% believed the policies introduced by Prime Minister Shinzo Abe would help the Japanese economy. Indeed, 40% of managers were “uncertain” about whether the policies would hurt global trade, with another 17% believing damage to global trade was likely.
In terms of asset classes, investment managers were increasingly bearish on bonds, with the Barclays Capital Aggregate Bond Index ranking the lowest. US large and small caps were most popular.
And when considering industry sectors, defensive stocks such as utilities and telecoms languished at the bottom of the table, with information technology, consumer discretionary and industrials offering a positive outlook.
Financials had the most improved outlook, recording a 56% bullish outlook, compared to 51% in the last quarter.
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