Global Pensions' editor Luke Clancy looks back at the investment predictions made this time last year.
GLOBAL - Predictions by fund mangers of a recovered global economy in 2002 have compared harshly with the reality.
Late 2001, bulls at Legal & General Investment Management predicted growth in 2002’s UK equity markets, forecasting that the FTSE100 Index would end the year between 6,000-6,200. At the time, the index was around the 5,200 level. In reality the index struggled at around 4,000. L&G was not alone in its optimism. Morley Fund Management also forecast a year-end FTSE100 target of 6000.
The most pessimistic forecast - and nearest the mark - came from SG Asset Management chief executive Nicola Horlick, who believed the bear market was far from over and that the FTSE100 could “easily” fall to 3000. The last time this happened was 1994.
There is traditionally a ‘January effect’ in the US where investors who have sold losing stocks at the end of the year to realise tax losses, buy them back early in the new year. There is also a tendency for investors to purchase shares after receiving Christmas bonuses. This can then have an effect on other countries. In fact, in Europe and the UK, December and January tend to be the strongest months of the year. Perhaps it was this optimism that led most investment managers to forecast an upswing.
AXA Investment Managers’ view was typical of 2002. It said just before Christmas 2001: “Major markets haven’t experienced three consecutive down years in a very long time and, as such, we remain optimistic on the bullish nature of 2002.”
In a January 2002 forecast, AXA IM added: “Over the last three months, equities have rebounded sufficiently to suggest that the much-awaited economic resurgence is looming on the horizon. We still see 2002 as the year of the bull, although perhaps at more sedate levels than seen previously ... we expect to see equities outperforming bonds.”
In mid-December 2001, Invesco was also bullish on 2002, predicting a strong US recovery fuelled by easy liquidity and low short-term interest rates. At the time the Dow Jones Industrial Average was up 21% while the Nasdaq was up 43% since their lows on 21 September 2001. However, year-to-date, the Dow has dived from around 10,000 to 8,500 while the Nasdaq has dropped from about 2,000 to 1,400.
Govett Investments predicted the S&P500 would rise 5%-6%, as did Swiss Life Asset Management which advised investors to “leave some room for upside in the S&P500.” In fact, the index year-to-date has lost around 250 points, falling from about 1,150 at the end of 2001 to 900 at the end of 2002.
Ashmore Investment Management reckoned that the global environment going into 2002 remained “uncertain” but it was likely “that the US economy leads G3 economic recovery in the second half of the year.” This was a popular prediction, with Gartmore and F&C Management issuing similar outlooks.
Morley also predicted strong 2H growth for the UK market in 2002 despite a US downturn. It warned that UK interest rates needed to rise in 2H as the global economy recovers.
Baring Asset Management also expected a European resurgence in 2H 2002. The firm said in December 2001 that “with equity markets cheap relative to bonds, European markets now present a long term buying opportunity.” The firm propagated a relatively bullish stance on Asia (ex-Japan).
SGAM’s head of fixed interest Paul Rayner suggested a global recovery would cull the trend where bonds have outperformed equities over the last two years. He said: “We do think equities will outperform bonds over the next year or two. Equities look reasonably cheap and given the reflationary moves of central banks this will be beneficial for the equity markets going forward and negative for the bond markets in the long term.”
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