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September 21, 2010

Worst Over in Global Poll Pointing to Reduced Market Returns
By Rich Miller – Sep 21, 2010
Three out of five global investors say the world economy has weathered the financial crisis and has stabilized two years after the collapse of Lehman Brothers Holdings Inc.

Few believe the economy is recovering, with only one in six of those surveyed describing it as expanding, according to a global quarterly poll of 1,408 investors, analysts and traders who are Bloomberg subscribers. Forty-one percent aren’t convinced the financial situation is stable and say further turbulence is likely.

“When taken as a whole, the world has stabilized,” says Uzi Zimmerman, a respondent to the Bloomberg Global Poll and managing member of Ventura Capital Management, a hedge fund in the Los Angeles area. “The emerging markets of Asia and Latin America are providing support to the global economic malaise.”

There are still danger spots, including the threat of government defaults, respondents say. Over the last three months, the percentage of those who say it’s likely Ireland will default more than doubled to 37 percent, according to the poll, conducted on Sept. 16-17. Still, a majority see this as unlikely.

Investors are responding to the economic environment by managing their money conservatively, according to the poll, which has a margin of error of plus or minus 2.6 percentage points. More than 40 percent are still hunkering down, while one in three are taking more risks. The rest say they are getting back to normal. Those percentages were little changed from the last poll in June.

‘Much More Diversified’

“In the absence of clarity on numerous issues, we are much more diversified,” says Buddie C. Ballard Jr., a principal in Alpha Capital Management in Austin, Texas. “We’ve increased our exposure into more asset classes with smaller position sizes and tactically apply stops to those positions” to limit losses.

The Paris-based Organization for Economic Cooperation and Development said on Sept. 9 that growth in the major industrial nations may slow to an annualized rate of about 1.5 percent in the second half of this year from 3 percent in the first half.

Europe is seen as a weak link in the world economy. More than three-quarters of those surveyed see a risk that the eurozone may dissolve eventually, and more than 20 percent of those describe such a threat as looming. That’s a more pessimistic take than in June, when a majority said the currency union would remain intact.

European investors are the most optimistic about the chances of avoiding a breakup of the eurozone; U.S. investors the least.

Shunning the Debt

Yields on 10-year bonds from Portugal and Ireland rose to their highest level since 1997 yesterday as investors shunned the debt of so-called periphery nations in Europe on renewed concern that banks in the region will require further government aid.

Irish Finance Minister Brian Lenihan said on Sept. 17 the government isn’t facing difficulty raising funds, seeking to end speculation that it may need external financial aid. Ireland had the euro region’s biggest budget deficit in 2009.

Greece is still seen as the country most likely to default on its debt, with just over two-thirds of investors surveyed seeing that as probable. That’s down from the 73 percent who said they felt that way in June.

Among asset classes, commodities have gained the most in popularity among investors since the last poll. About one in three of those surveyed said commodities will offer the highest return over the next year. In June, 23 percent said that.

Commodities Fall

The Reuters/Jefferies CRB Index of 19 commodities has fallen 1.3 percent this year, led by declines in natural gas, cocoa and sugar, amid mounting concern about the strength of the global recovery.

Stocks are still seen as the number one investment over the next year, with 36 percent of those contacted saying equities will offer the highest return, little changed from June.

Almost half of investors surveyed see the Standard & Poor’s 500 index rising over the next six months, versus 28 percent who predict it will fall. Pluralities of more than 35 percent forecast that the Euro Stoxx 50 Index and FTSE index will be higher in six months time.

The S&P index has risen almost 2.5 percent this year. The Euro Stoxx 50 index has fallen 5.5 percent, while the FTSE 100 Index has risen 3.5 percent.

Bonds Worst Investment

“The most undervalued and best place to invest right now are developed countries, blue-chip equities with good dividend yields and a good dividend growth rate,” said Douglas Schoninger, president of DJS Capital Management in New York.

Government bonds are seen as the worst investment for the coming year. Almost half of those polled said they felt that way, up from 36 percent in June.

The yield on the U.S. Treasury’s 10-note stood at 2.71 percent as of 4 p.m. yesterday, compared with a 19-month low of 2.42 percent reached Aug. 25. Half of investors surveyed said they expect the yield to rise further over the next six months, about double those forecasting a fall.

Real estate also fared poorly in the poll, with one in four investors saying that would be the asset class with the worst return in the coming year.

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