GLOBAL - A handful of surveys of investor confidence published recently draw a generally similar conclusion - things are not getting any better any faster.
Many fund managers appear to believe the magnitude of the US current account and budget deficits represent a threat to the dollar, and are prepared to take out insurance against that risk by hedging their exposure to the currency, according to Merrill Lynch’s April Fund Manager Survey.
The survey found 25% of fund managers had hedged some of their dollar exposure and another 10% had hedged all their exposure. The remainder said they are not allowed to hedge the exposure or had not yet taken action. Moreover, following its recent rally, 53% of the 314 managers in the panel think the dollar is overvalued, up from 38% the previous month.
David Bowers, Merrill Lynch chief global investment strategist, said: “This year, both the current account and budget deficits could be as much as 5% of gross domestic product.”
The survey, conducted as American troops entered Baghdad, also suggested fund managers see a world of single-digit corporate earnings growth, sluggish top-line sales growth, and deteriorating pricing power.
Equities also are still perceived as undervalued and bonds as overvalued, but fund managers no longer regard equities as oversold (see table). A net 33% of managers see equities as undervalued.
In addition, fund managers also reported there are not any high cash balances ‘waiting in the wings.’ Indeed, the average cash balance among the panel fell sharply to 4.6% in April from 5.4% in March, the lowest percentage since January 2003.
The 314 institutional investors surveyed in April manage a total of $751bn.
The third JPMorgan Fleming Investor Confidence Survey found that 47% of the investors sampled believe the stock market will be lower in six months time. However, this is slightly down on the 53% recorded in the previous month.
Peter Brewster, head of market research at JPMorgan Fleming, said: “We have seen a clear drop in investor confidence since March 2002 as investors react to terrorism, fears of war and the general slowdown of the world economy.”
Mercer Investment Consulting surveyed almost 300 members of the investment community on their expectations and investment intentions in light of declining equity markets. Included were over 90 large pension and other institutional funds, together with a sizeable representation of global investment managers. Key findings were:
- The majority expect equity market conditions to remain dull over the next 3-5 years.
- Asia Pacific (excluding Japan) and emerging equity markets are seen to offer the best growth prospects.
- There is currently little appetite for shifting substantially into bonds despite the liability matching merits, though just over a third expect to diversify their equity risk by investing in other asset classes.
- Private equity remains a relatively unattractive alternative investment in the eyes of many funds.
-The vast majority of funds and investment managers (89%) think benchmark hugging by investment managers is an issue.
In addition, a Standard & Poor’s survey found that while the US market, as measured by the S&P 500, declined 23% in 2002, ETF assets and total indexed/enhanced assets into products based on the S&P 500, decreased only 17%.
And research by Bridgewell Securities shows that after three difficult years, the fund management industry is facing significant structural change arising from structural weakness disguised by the bull market of the 90s.
However, Bridgewell added: “Fund management is still a long-term growth business. As baby-boomers enter their prime savings period and as fund
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