Investors expect US markets to have best return
International investors are the most bullish they have been on the US and Japanese markets in more than three and a half years as both countries’ economies are seen as improving, according to the latest Bloomberg Global Poll.
More than half of those contacted said the US will be among the markets offering the best returns over the next year, a 15-point jump from the last poll in January and the highest rating for any country since the survey began asking that question in October 2009. Japan, which had been seen as a place to avoid in many of the previous polls, ranked second in the May 14 survey of investors, analysts and traders who are Bloomberg subscribers, with one in three picking it as a market to favor.
“I’m upbeat on the US,” said Charles Doraine, president of Doraine Wealth Management Group Inc. in Corpus Christie, Texas, and a poll respondent. “Housing is coming back,” and the country “can be energy independent in the not too distant future.”
China experienced a reversal of fortunes in the survey as it went from investment darling to dud. More than one in four investors said its market would be among those with the worst opportunities. Only the European Union did poorer; it was singled out as a market to avoid by 45 percent of those polled.
Investors also soured on commodities and gold, with a majority now seeing deflation as a greater threat than inflation in the coming year. More than two in five intend to reduce their exposure to gold over the next six months, the highest percentage divesting since the question was first asked in November 2010 and close to three times more than those who plan to increase it.
Stocks best
Stocks were again the asset of choice for those polled. Fifty-four percent said equities will offer the highest returns over the next year, the best reading in the nearly fouryear history of the poll. Real estate came in second, the favorite of just under one in five surveyed. Fortytwo percent said they plan to increase their exposure to the property market in the next six months, up from 36% in January and the highest reading since the survey began asking that in June 2010.
The US economy is in its best shape in more than two and a half years, according to the poll. More than three in five respondents described it as improving, the most since the poll began asking the question in September 2010.
US economy
The US economy will “grow at least 2.5 percent next year,” said Sangwook Lee, chief foreign-currency fixedincome portfolio manager at Shinhan Bank in Seoul and a poll respondent. That would be the fastest expansion of gross domestic product since 2006. GDP climbed 2.2% last year.
Recent signs about the US outlook have been mixed. Industrial production declined in April by the most in eight months, according to the Federal Reserve, while the Commerce Department reported that retail sales rebounded.
Given the investor optimism about the US, two in five of those surveyed said they plan to increase their exposure to the US dollar over the next six months. That is up from one in five who said that in January and is the highest percentage since the question was first asked in September 2011. Only 9% said they were reducing exposure.
The Dollar Index, which measures the currency’s value against a basket of six major currencies, has risen about 5% this year. & Poor’s 500 Index to rise over the next six months. While that is down from 62% in January, it is still the second biggest percentage in almost one and a half years.
“The US equity market has been setting new highs recently, but I do not see why this cannot continue,”
‘The US equity market has been setting new highs recently, but I do not see why this cannot continue’
The US currency should benefit in the months ahead as the Federal Reserve looks to scale back its stimulus while other central banks add to theirs, Ryan Longhenry, a poll participant and a trader for CJS Trading Corp. in Chicago, said in an email.
Headed higher
US stocks also are headed higher, according to the survey. More than half of investors expect the Standard Peter Fitzgerald, co-head of the multi-manager team for Aviva Investors in London, said in an email.
“The US economy is growing at a reasonable rate, monetary policy is extremely accommodative, the housing market continues to recover, businesses have reasonable amounts of cash and have underinvested for years,” added Fitzgerald, who took part in the poll and whose team is responsible for more than £3
billion ($4.57b.) of client portfolios.
Equity bulls
The S&P stock gauge has risen more than 16% this year.
Global investors are even more bullish on Japanese equities. More than three in five see the Nikkei 225 Stock Average rising over the next six months. Only 16% expect it to fall.
The stock gauge has climbed about 44% this year, spurred by quantitative easing from the Bank of Japan.
“As long as the BOJ maintains the current QE program until 2015, as it promised to do so, major corporates and banks’ equities will outperform the other markets,” Shinhan Bank’s Lee said in an email.
Japan’s economy expanded more than analysts estimated in the first quarter on gains in consumer spending and exports, with gross domestic product rising an annualized 3.5%, the government said.
Japan improving
Close to half of investors described the Japanese economy as improving. Only 14 percent said it is deteriorating.
As investors have grown more bullish on Japan, they have gotten more bearish on China. More than one in four singled out China as among the markets that will offer the worst opportunities over the next year, the most that have said that since January 2010.
The world’s second biggest economy expanded 7.7% in the first quarter from a year earlier, down from 7.9% in the fourth, according to the National Bureau of Statistics in Beijing.
About three in 10 investors think slowing Chinese growth poses the biggest risk to the global economy in 2013. That was second only to Europe’s debt crisis; 36% singled it out as the largest danger.
Debt defaults
Two-thirds of those surveyed consider a debt default by Cyprus to be likely. Thirty-five percent think the same about Slovenia, another member of the euro area.
Investors are sanguine about threats to the global economy from hostilities in the Middle East. Only 6% saw a high risk that the civil war in Syria would escalate so much that it will affect oil prices. Twothirds though said US intervention in the conflict would damage, rather than improve, regional stability.
As Chinese growth has slowed and its demand for raw materials ebbed, investors have cooled on commodities. One in five said commodities were the asset to be most shunned over the next year, the worst showing in the nearly fouryear history of the poll.
Fifty-six percent of investors believe deflation will be a greater threat to the global economy than inflation over the next year, according to the poll. That is a reversal from two years ago; in January 2011, three-quarters thought inflation was the bigger danger.
“Despite all the QE and lower interest rates, inflation simply has not been a problem,” said Fitzgerald of Aviva Investors. “Deflation poses a much greater risk with current debt levels.”
The poll of 906 Bloomberg subscribers was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.3 percentage points. (Bloomberg)