FYI | Jun 18 2012
– Barclays Capital investor survey shows Eurozone tops investor concerns
– Majority expect bonds will be best performing asset class
– Most see Greece leaving the Eurozone
– Equities regarded as undervalued at present
By Chris Shaw
Barclays Capital conducted a global survey of institutional investors last week, the survey finding some major changes in investor attitude relative to a similar survey in March.
The first change is increased investor caution as problems in the euro area have again moved to the forefront of investors' decision making. This is becoming evident in both asset allocation and positioning, as 38% of respondents expect high quality bonds will be the best performing asset class over the next year, compared to 24% of respondents that favour equities. These proportions compare to 12% and 37% respectively in the March quarter.
Among foreign exchange investors, Barclays notes 43% of investors view the safe haven currencies of the US dollar and Japanese yen as most attractive. This is in contrast to the March survey, which showed investors preferred the commodity currencies.
The survey showed 64% of both forex and equity investors viewed the euro region as the key risk to markets at present, up from 30% and 35% respectively in March. In contrast only 48% of emerging market investors viewed the euro region as the major problem for markets at present, as the potential for a hard landing in China continues to offer cause for concern for such investors.
As Barclays notes, 58% of investors responding to the survey expect at least one country will leave the euro zone in the next year, up from 39% in the March survey. At the same time, half those responding see any exit being confined to Greece.
US prospects appear strong according to those responding, with just over half of all equity investors expecting the US would be the best performing region looking forward. At the same time around 80% of credit investors saw US markets as attractive, up by 17% from March.
About 80% of rate investors expect the US Federal Reserve will loosen policy further in coming months, to the extent only around 2% of investors in credit markets see US 10-year bond rates moving above 2.25% in the next three months. This compares to more than 50% of such investors in March.
Outside of the euro and US regions, investors expect weak growth from China but only 17% are expecting a hard landing for that economy. At the same time Barclays notes while only 20% expect no further quantitative easing in the UK, while 66% see some further policy moves as likely but limited in scope.
A more positive view to come out of the survey from Barclays was that more than twice as many equity investors see this sector as under- rather than overvalued at present. More than 40% expect equity prices will increase by 5% or more over the rest of the year, though this is down from more than 70% in the March survey. Barclays notes around 90% of investors expect earnings expectations will be revised lower in coming months.
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