Survey digest: global expectations
Institutional investors are heading into the fourth quarter with an overall ‘heightened sense of caution’ but are once again bullish on China, according to Bank of America Merrill Lynch’s September fund manager survey. A net 11 percent of investors expect China’s economy to strengthen – a dramatic turn-around from the 39 percent who were bearish on China in July. Malaysia was the Asia-Pacific region’s least favored market.
The survey, conducted in early September, shows global emerging markets remain the preferred destination for investors, although they have trimmed allocations due to growth uncertainty and risk-aversion. Brazil and Russia continue to be favorites, while appetite for Turkey has fallen somewhat. The consumer discretionary sector remains the most popular among emerging markets investors; utilities, staples and healthcare are least favored. Meanwhile, sentiment is broadly neutral toward the US, the Eurozone and the UK, and slightly bearish for Japan.
For their part, domestic Japanese investors are also growing less bullish about the outlook for share prices, citing forex trends as the factor most likely to influence the market. According to Nomura Securities’ September individual investor survey, pharmaceuticals continue to be the most appealing sector, with automobiles least so. A Reuters poll reflects similar negativity, with sentiment falling to an 18-month low.
In Europe, September saw German investor confidence decline for the fifth consecutive month, according to the Mannheim-based ZEW Center for European Economic Research. In a statement, ZEW president Wolfgang Franz says the declining investor and analyst sentiment index, which measures expectations of economic activity over the following six months, indicates that ‘financial experts put more weight on risks than they did before’. ZEW reports that confidence also fell in all six east European countries surveyed, with the biggest declines in the Czech Republic and Hungary.
Consequences of uncertainty
The crisis of confidence is perhaps most pronounced in the US, where an Associated Press-CNBC poll finds the majority of investors think the market is unfair to the little guy. Nearly 90 percent of those with portfolios of less than $50,000 think so; three quarters of investors worth $250,000 agree. The survey, conducted between August 26 and September 8, also finds widespread distrust in regulators’ ability to monitor markets: half the 1,035 investors interviewed express little or no confidence.
The consequences of shaky investor confidence have been enormous. According to the Investment Company Institute, US investors pulled a net $244 bn out of stock mutual funds from January 2008 through July 2010.
Curiously, while US investors say they don’t trust stock markets, their confidence in public companies and their audited financial statements remains stable, according to a survey conducted by the Center for Audit Quality. For the second year in a row, investor confidence in audited financial information released by public companies persists at 70 percent – a level the Washington-based organization tells us is ‘strong’.
Less ‘strong’ is Americans’ understanding of the differences between brokers and investment advisers, according to a survey conducted by a coalition of consumer and investment adviser groups. No wonder: the SEC currently lets brokers describe their sales representatives as ‘financial advisers’, even though they are not held to any fiduciary duty. What a surprise.
One area where confidence is taking a modestly positive turn is hedge funds. While fees and transparency are still concerns, a survey of 45 institutional investors finds trust returning to this asset class. Still, while management and performance fees are becoming more ‘acceptable’, almost half of respondents tell Preqin, a London and New York-based research firm, that they refrained from dabbling in hedge funds due to their penchant for opaqueness. According to the study, ‘as Madoff proved, high-performing ‘black box’ strategies may not be what they seem, so the institutional market is becoming much more stringent in looking for transparent sources of alpha.’