Survey: Managers Fear Curbed Growth as Euro Debt Concerns Continue

(July 9, 2010) — A new survey shows that institutional investment managers are less optimistic about near-term global growth and more concerned that the Euro debt crisis will continue to affect markets for at least another six months.

“I think the survey shows managers are worried about the global economy in general, since the US economy is linked to the global economy” said Northern Trust’s Janet Yang to ai5000. “Managers are worried that developed countries will take longer to heal, as managers are leaning heavily on the crutch of Chinese economic growth.”

The second-quarter survey, conducted by Northern Trust Global Advisors (NTGA), the multi-manager arm of Northern Trust Corp., reflected a significant shift in optimism from the prior four quarters, with more than two-thirds of respondents expecting sovereign debt concerns in Portugal, Italy, Ireland, Greece and Spain to negatively impact global markets. Seventy-five percent of those surveyed anticipate that global growth will remain the same or decelerate.

While the survey showed a darker view on the global economy, the market view appeared to be more positive. “Financial markets don’t always follow the global economy,” said Yang to ai5000. “Sixty-two percent of managers are optimistic on market valuations and see opportunity, as countries have fortified their balance sheets.” Meanwhile, institutional managers are less concerned about the prospect of inflation or rising interest rates. At the same time, results show managers are more risk averse — 31% indicated they are more risk-averse, up from 23% in the first quarter.

“There’s also a concern that world leaders are becoming too defensive…more schizophrenic,” said Yang.

As a result of waning confidence in global markets, 21% of managers have reduced exposure to the Eurozone on fears that Europe will need to bail out countries, the findings revealed, while the majority of managers (57%) have avoided these countries completely.

Additionally, the survey found that investment managers cited technology, energy, health care, emerging markets and industrials as the top five most attractive market segments. Consumer discretionary dropped out of the top five, while emerging markets moved higher in the rankings.

The survey by NTGA consisted of approximately 90 institutional managers — long-only mangers in US equity, international equity, and fixed income — who were polled in mid-June.