Survey digest: the current mood
Pessimistic is the word that best sums up descriptions of global equity investor sentiment in recent months, with concern about public finances top of mind. Nearly half of US individual investors expect stocks to fall over the next six months. Their pessimism jumped dramatically in May, according to the latest monthly survey from the American Association of Individual Investors (AAII), which finds the European sovereign debt crisis and concern about the US federal deficit weighing heavily on investors’ minds.
Meanwhile, an online broker’s survey of more than 1,100 clients finds nearly 75 percent predict the Dow will be up over the next six months. ‘Given all we’ve been through economically, there’s a surprising sense of optimism for 2010,’ says Zecco Holdings CEO Michael Raneri in a press release.
It’s maybe not so surprising. According to the May BofA Merrill Lynch Survey of Fund Managers, global investors have ‘capitulated on Europe’ and are buying US equities. The June survey also notes that fears over the euro have peaked. ‘Investors are starting to see the basis for Europe’s rehabilitation on the back of a more constructive outlook for the euro,’ says Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research. In other words, the negative sentiment, at its worst in May, ‘appears to have troughed’, and global investors are now more positive about European stocks and the euro itself.
Within the region, however, the BofA Merrill Lynch survey reports investors at their gloomiest for more than 12 months. Just 7 percent of European fund managers expect the region’s economy to improve in the coming year.
The state of European public budgets is a key factor in falling continental confidence, according to a survey of 275 analysts conducted by the Centre for European Economic Research (ZEW). Expectations for the next six months in Germany, Europe’s biggest economy, are lowered for the seventh time in eight months, according to ZEW’s confidence index. Expectations in central and eastern Europe, on the other hand, seem only marginally affected by the Eurozone debt crisis.
Worries about European nations’ debts have led to a sharp fall in Japanese retail investor sentiment toward domestic stocks, according to a Reuters poll conducted in May. Despite an upturn in local corporate earnings, the yen’s appreciation against the euro and worries European fiscal austerity could stifle economic growth are blamed for the dramatic shift. The survey also shows nearly 30 percent of 747 respondents favor Brazil as the best emerging market for their money, with India and Vietnam picking up second and third spots.
Japanese investors have been pouring buckets of cash into Brazil-related mutual funds in recent years, lured by healthy economic fundamentals, increasing consumer spending and prospects of infrastructure development linked to the 2016 Olympics and the 2014 football World Cup.
A Nomura Securities survey of Japanese individual investors, also conducted in May, confirms dampening investor enthusiasm: the three-month share price outlook is dimmest for financials, while the pharmaceuticals sector shows the most appeal.
Middle Eastern investors are looking to put more money into emerging markets than in North America, Europe or Japan, according to a May study by US fund manager Invesco. The survey of Gulf investors also reveals a surprisingly short-term horizon compared with global benchmarks, with both institutional and retail markets becoming increasingly risk-averse.
The May edition of the Sanlam Investment Management Investor Confidence Index shows South African investors are still vague in their outlook for local equity markets. Valuation concerns hold back enthusiasm in what Sanlam calls ‘an uncertainty trap’. Providing good investor relations has traditionally been the solution to that problem.