GLOBAL – Despite increased positive sentiment about equity returns in 2013, investment managers still expect the year to see a sovereign debt default by a euro-zone nation and continuing weak fiscal situations in the US, UK and Japan, a new survey has found.
The global survey of 169 investment managers by Towers Watson uncovered a negative view of global growth and government bonds.
Additionally, government intervention, global economic imbalances, sovereign debt defaults and inflation were the foremost concerns for investors polled by the consultancy.
Managers expect better equity returns in most markets over the coming 12 months then they did for 2012. The exceptions are for the US and Australia markets, where return expectations, at 7% and 6%, respectively, are at their lowest since inception of the survey in 2008.
Robert Brown, chairman of Towers Watson's global investment committee, said: "Euro-zone countries face highly political long-term structural reforms, as well as fiscal austerity, which are proving difficult to implement, pushing out further any real global recovery.
"Politics have become increasingly enmeshed in the financial world since the global economic crisis began and investment managers have again identified this as the top issue for them."
Brown nonetheless pointed out that some positive economic signals were coming out of the US which, even though driven largely by government policies, seemed to be the region with the most rewarding investment opportunities in 2013, followed by China, the euro-zone and frontier markets.
"While government policies are clearly intended to stimulate growth and address the massive US fiscal deficit, we see the risk skewed towards deflation rather than inflation," he added.
"That said, the housing market still remains key to a US recovery if the headwind of negative equity can be overcome."
Brown went on to say that a sustained global economic recovery was likely to remain fragile in 2013, set as it was against the "unavoidable situations of extreme indebtedness" in the Western world, ongoing double and triple-dip recessions and weak and uncertain prospects for growth in many markets.
The survey also found that investment managers expected institutional investors to either modestly increase risk or keep their portfolio risk level over the course of 2013.