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Oct 12, 2015

Management teams and investors grow more bearish

Report detects ‘wall of worry’ as investors worldwide fear contagion from China 

Company management teams were three times more likely to be bearish in the third quarter than the second, according to a survey of investor perception by Corbin Perception. At the same time, the number of investors calling themselves ‘bearish’ more than doubled.

According to Corbin Perception’s latest ‘Inside the buy side’ report, the percentage of investors that view management as ‘more bearish’ jumped to 39 percent in the third quarter from 11 percent in the second quarter while the percentage of bearish investors rose to almost a quarter (24 percent) from 9 percent. The percentage of investors that consider themselves ‘bullish’ declined to 3 percent.

‘Survey findings indicate a significant spike in bearish sentiment resulting in a ‘wall of worry’, as concerns about growth and an international credit crunch loom,’ according to the report. ‘While the bulls came out in droves in the first week of the new quarter, the focus this earnings season will be on management tone and outlook as investors set bets for 2016.’

The main concern heading into the fourth quarter of 2015 is potential contagion of stock market turmoil and slowing economic growth in China, with 95 percent of investors saying they are ‘moderately’ or ‘very’ concerned.

Asia-based investors are most worried about contagion from China, with 57 percent saying they are very concerned and the rest expressing moderate concern. In fact, Asia-based investors are nearly twice and three times as concerned as their US and European counterparts, respectively.

The report says an ‘earnings recession is already priced in’, with 45 percent of investors predicting results worse than consensus, up from 30 percent last quarter. Corbin Perception says the figures could represent a positive signal for stocks because ‘our research indicates that investor perceptions are almost always worse than reality’, making it easy to perform better than expected. It adds however, that it is ‘concerned about management tone being muted, which could pressure stocks’.