In the wake of the Great Recession, economies no longer soar and plummet together like a synchronised chorus line. The world is once again an uncorrelated place, and investors have to pay close attention to the performance of individual economies. In that kind of environment, it’s no surprise that the impact of monetary policy, prospects for global growth and investments across asset classes were subjects of much debate at the Credit Suisse Global Macro Conference held in New York. Money managers and hedge fund comprised about 60 per cent of the audience, with an approximately even split between the two groups. Forty-six per cent of attendees worked for firms with more than $20 billion in assets under management.
Throughout the conference, Credit Suisse surveyed attendees about some of the most pressing macroeconomic trends. The investors present were upbeat about equities as an asset class in both the short and long term and said monetary policy and its effects would be the biggest issue facing global markets in the coming year. Investors’ biggest fear was the same one that has dogged markets for several years- the performance of the American, Chinese and European economies.Here’s some more detail about what macro investors had to say about where the world is going.
Nearly 48 per cent of investors attending the Credit Suisse conference said that monetary policy would be the predominant issue impacting global markets over the next year. Forty per cent of respondents named growth as their top concern. It stands to reason then that most investors-45 per cent- believed that monetary policy was losing traction in fueling growth in the U.S. and other major economies. But an equal number of respondents were more upbeat, with 21 per cent of investors saying monetary policy was “ a powerful macro management tool” and 23 per cent calling it “still effective.”
When it came to deciding whether the Big Four central banks- the U.S. federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan- were engaging in so- called currency wars, investors took a middle-of-the-road view. About two-thirds of respondents thought monetary policies were driven by both a desire to stimulate domestic demand and to gain favourable exchange rates, and only 13 per cent thought central bankers were acting solely to weaken their currencies. Of the Big Four, the Fed and the Bank of Japan are overseeing the most ambitious easing programs.
Investors mostly agreed (46 per cent) that the Federal Reserve would be the first of the Big Four to hit 3 per cent short-term interest rates. The outlook for Japanwas less clear. Nearly 53 per cent of respondents thought that inflation would be nonexistent two years from now, while 44 per cent were optimistic that Abe-nomics would allow the country to hit its 2 per cent inflation target within two years.
About 44 per cent of investors chose the economic situations in Europe, the U.S. and China as the biggest risk facing markets in the remainder of 2013, while 24 per cent chose the slowing or end of the credit cycle. Just when it might seem in the popular press as if the U.S. is out of the economic woods, nearly 32 per cent of investors said they expected the country to enter its next recession sometime between July 2014 and December 2015. Credit Suisse Chief Economist Neal Soss pointed out that U.S. business cycles have typically averaged four years of growth, followed by nine months of contraction, and that the current business upswing is about to enter its fourth year.
As for China, 39 per cent of investors saw bad bank debt as the top threat to the powerhouse’s growth. Second place went to shadow banking and corruption, each of which got 19 per cent of the audience’s vote. European senior financial debt took the prize for the credit market most likely to see a growing number of defaults in the next five years.
When it came to asset class preferences, given the ultra-low interest rates in most developed economies, investors at the Macro Conference were hot for equities. Nearly 78 per cent of the audience chose stocks as the best performing asset class over the next three months, while 63 per cent said equities would outperform cash, Government bonds, credit and commodities over the next five years. Still, most investors (47 per cent said they were taking a tactically bullish approach to their allocations, going long on equity and short on fixed income. Only 27 per cent said they believed “the equity supercycle is back” and were maximum overweight equity.
Investors were fairly evenly split over where the best-performing region would be in the coming year. Thirty-one per cent said Japan would be the top performer, no doubt helped along by the monetary stimulus that has already boosted the Nikkei, while an equal number of respondents (27 per cent each) picked emerging markets and the United States as this year’s best equities story.
(All images from the Credit Suisse 2013 global Macro conference Investment Sentiment Survey, unless otherwise noted. )
– The Financialist