Investment managers around the world expect continued growth in the American economy and corporate profits even as the Federal Reserve reduces its bond buying under the quantitative easing program.
This is according to a quarterly Northern Trust survey conducted in December 2013.
Although 69% of respondents anticipate that interest rates will rise when the Fed begins its tapering, they see fundamentals within the U.S. economy and corporations as steady to improving. For example, 95% of respondents expect job growth to be steady or increasing over the next six months, compared to 86% who held that view in the previous survey. On corporate profits, 64% of managers project that earnings will increase over the next three months, versus 49% with that view in the third quarter of 2013. Overall, 95% of respondents think corporate earnings will be stable or increase.
At the same time, 64% of survey participants believe market volatility as measured by the Chicago Board Options Exchange’s Volatility Index will increase over the next six months. Also, 34% of managers became more risk-averse in their portfolios in the fourth quarter of 2013, compared to 20% in the third quarter. More than half report no change in risk aversion.
When it comes to emerging market and European equities, most managers see attractive valuations. More than half say emerging market equities are undervalued and 52% believe European equities are undervalued. This compares with 36% of respondents who view U.S. equities as undervalued. Managers are almost evenly split on valuations of the Japanese equity market: 31% see it as undervalued, 36% as appropriately valued and 33% as overvalued. While emerging markets seem to have the most favorable valuations, they are ranked third on the survey’s “Bull/Bear Indicator,” behind U.S large-cap equities and non-U.S. developed markets as the most bullish asset classes.
The survey polled approximately 100 investment managers.