FYI | Sep 21 2012
– Barclays survey shows improved investor confidence
– Equities and commodities among preferred asset classes
– Europe regarded as less of an issue
– US, Chinese growth outlooks a concern
By Chris Shaw
The latest quarterly Global Macro Survey of more than 400 global investors by Barclays shows investor confidence has improved over the past quarter. While positions remain lighter than is usually the case, only 35% of respondents are currently running less risk than usual, down from 52% in June.
At the same time the proportion of investors viewing relatively cyclical assets such as equities and commodities as likely to be the best performers over the next three months has increased significantly. A total of 39% of responses favour equities and 22% prefer commodities, these up from 24% and 8% respectively in the June survey.
Only 14% of those responding to the survey viewed government bonds as the most attractive assets for the coming quarter, which is significantly lower than the 37% result in the June survey.
Barclays notes 63% of equity investors now expect a rise in the market of 5% or more for the coming three months, while only 4% are forecasting a fall in equities of a similar magnitude. In a similar vein, 39% of respondents view equity markets as undervalued at present, against 18% suggesting markets are overvalued.
From a sector performance perspective, commodity-leveraged and inflation-sensitive sectors such as energy and basic resources and beneficiaries of better global growth such as technology and industrials are expected to be the best performing sectors for the rest of the year.
Forex investors expect the safe-haven US and Japanese currencies along with emerging market commodity currencies will offer the best risk-reward in the next quarter, 24% favouring the former group and 22% preferring the latter.
Responses showed euro area risks are not as prominent as in the previous quarter, though more than 40% of investors surveyed continue to expect at least one country will leave the eurozone in the next year. Greece is viewed as the most likely.
In contrast, 57% of investors see no country leaving the eurozone in the coming 12 months, up from 42% in June. Almost 80% of fixed income investors expect Spain will enter a full EU/ECB/IMF program by the end of the year, while Barclays notes 44% of those surveyed expect Italy will require financial support sometime by the end of next year.
Just over 70% of fixed income investors responding to the survey see the ECB cutting interest rates over the next six months, with one-third expecting the deposit rate will be cut below zero at some time during this period.
Less than 20% of emerging market investors see the issues in Europe as the most important risk to emerging markets, down from 30% in the June survey. Foreign exchange investors are also less concerned about Europe, as the survey showed only 32% of those investing in forex markets see Europe as the most important theme in the next quarter. This compares to 67% in the June survey.
With respect to the US market, only 18% of respondents see fiscal solvency as a major risk for the US in the next three years, while nearly half of those responding see weak growth and rising structural employment as the major risks for the US in the same period.
The US fiscal solvency issue will remain a significant one for certain asset classes. Just over 25% of investors viewed US fiscal policy mismanagement as the biggest short-term risk for global equities, which was slightly more than the percentage of those surveyed showing concern about weak growth in the US and Europe and European sovereign debt issues.
The US's fiscal problems are seen as a major driver of forex markets in the coming quarter for 49% of foreign exchange investors, which compares to 32% that expect euro area problems will be the main driver of currency markets. At the same time, only one quarter of those surveyed expect the fiscal cliff to have a bigger impact than is already being priced into markets.
The Chinese economy is a problem for some asset markets, with the growth outlook for that economy a particular concern to investors in emerging markets and forex markets. In both cases Chinese growth is viewed as the most underpriced risk, by 42% of emerging markets investors and 32% of forex investors.
The latest BA-Merrill Lynch Global Fund Manager Survey is also in and once again, Merrills notes, investor positioning is not keeping pace with asset prices. While sentiment supports a bullish trading view, low equity allocations and high cash levels mean investors are not "all-in" on risk assets, unlike policy makers.
Having said that, for the first time since April 2011 funds are now net Overweight eurozone stocks. Eurozone risk is now seen as being less of an issue than the risk surrounding the US "fiscal cliff". In a nod to central bank action, investors no longer see global stagflation as a risk and indeed actual inflation concerns have now reached a 15-month high. Global profit expectations, in the meantime, have fallen. China may be wallowing somewhat but growth expectations for China have reached their highest level since October 2010. (High hopes for the regime change and subsequent policy action?)
On a net basis however, only a mere 7% of respondents see above-trend global growth in 2013.
September cash levels have dipped only sightly to 4.5%, which for Merrills is still an indicative "Buy" signal. Asset allocations have modestly moved into bonds as well as equities, and commodities allocations are now Overweight for the first time in five months.
In order to rotate "quite aggressively," notes Merrills, into eurozone stocks, investors have pulled back their Overweights in US and emerging market positions. Japan remains the big Underweight. Globally, sector Overweights include tech, pharma, energy, consumer staples and a record high Overweight in consumer discretionary. The big Underweights are in utilities, banks, materials and industrials.
Technical limitations
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