This survey has rarely found such consensus among asset managers as we see in this month’s survey. Virtually no manager expects euro-zone equities to fall or euro bond prices to rise
Just when some major themes seemed to be on pause, managers’ expectations crept into rarified territory, while in others themes in place since at least 2014 have gathered momentum. Whether valuation extremes are appropriate, managers believe they will continue.
Despite rising geopolitical tensions, there was no corresponding rise in negative sentiment in the most recent survey period. That does not mean there were no changes in sentiment trends; only that shifts were mostly slight
Investment managers’ expectations have been welcomingly accurate throughout the year. For example, positive sentiment toward European equities began to rise sharply near the end of 2016, followed by a roughly 20% rise in 2017. Additionally, expectations for dollar strength have been falling since January, and the dollar index (DXY) was down nearly 10% year-to-date through the recent survey period. What are managers’ views as we enter the second half of 2017?
It would be an understatement to say the shine has left the US equity market, given this month’s manager expectation submissions. The month’s responses indicate movements across all asset categories, with a positive nod toward Europe, while those who predict change (for instance in the US and the UK) are seeing an erosion of confidence towards equity valuations.
When fewer than one in 10 respondents expects something to happen, it is hard to accept it could happen. There is an increased number of such instances in the most recent IPE Asset Manager Expectations poll.
A key metric for interpreting manager expectations is the difference between those expecting a rise and those expecting a fall. Having data to analyse, trends, trend shifts and historical highs and lows helps make things clearer. While there are many themes worth noting, there is only one universally negative point, which is historically low and in a strong downtrend.
The latest manager poll has two main themes: markets are weak and levels of sentiment are extreme.
When a shift in sentiment begins, the euphoria does not dull universally; rather, the centre remains lustrous, while the edges are the first to fade
With two full months of post-US election information to sift though, shifts in manager expectations have been as extreme as some reactions to, and rhetoric from, our newest world leader. Even more so than the prior month, the conviction that there will be movements in certain asset classes is surprisingly high.
What a difference a month makes. With the previous indicator poll taken days before the US election, this month’s results illustrate how managers have digested markets’ reactions to the outcome
With the US election over, the opportunity of interpreting expectations of managers just prior to it is interesting. There were some interesting changes in the most recent period, but by far the most intriguing was the shifting of expectations to stability in equity markets without significant changes elsewhere.
Summer is over. Gone for the next nine months are the warm nights, and worry-free days…correction, only the warm nights have gone. The worry-free days did not exist this summer, and they still do not.
The current survey period captured the end of the summer. The number of managers voicing concern about interest rate policy is high. However, the current environment has yet to reflect the alarms of many major investors and the survey results indicate most managers expect little dramatic near-term movement. Whether it is not yet the season for action, or investors expect the status quo to continue, is yet unclear.
As time passes since the UK’s decision to leave the EU, some of the trends of the months prior have returned. This includes: outperforming US equity markets and dwindling faith in US dollar strength against the euro and yen (albeit with some volatility) and in sterling, which continues to drift lower after its post-Brexit decline. Whether managers’ expectations have recovered as quickly as these trends is the subject of this month’s review.
The expectation survey for August was completed in a post-Brexit market environment in which uncertainty was high, but cooler heads ultimately prevailed. Initial reactions caused a rebound in USD strength and an equity market sell-off, which was ultimately short-lived. Nevertheless, disrupted markets will influence expectations and results from the survey reflect managers’ concerns towards riskier assets.
During the survey period, managers experienced a different environment than during the two prior months. The dollar reversed its weakening trend, and commodity prices diverged as oil prices rose, metals’ declined, and coming screaming to the forefront of geopolitical headlines was the Brexit vote.