Shaky confidence returns
Some 43% of those taking part in this month’s Off The Record survey were quite confident that the world economy and financial system are now over the worst.
However, 27% were not confident and 23% were still concerned. While one respondent was certain, and one very confident, that the worst was over, another respondent was certain the worst was yet to come.
A Swiss fund felt the biggest risk to economic and financial stability to be “the mentality and habits of politicians”. The southern European countries have not sorted out their problems yet, Greece will break down again, and Europe won’t have any money left to save Greece. The US will continue to tightrope-walk too close to bankruptcy, and China needs to close down more industries because of pollution and other environmental problems.”
A Dutch fund commented: “Recovery of the economy is (solely) dependent on consumer confidence. The biggest risk we face is that this confidence is hurt time and again because our leaders (in politics and industry) choose to [break] the bad news in small chunks over a prolonged period of time.”
A German fund thought the biggest risk was “complacency towards the structural problems in the developed world. As the most pressing problems seem to be solved, the pressure to reform and change might have diminished too much. At the same time, monetary policy will be out of options should any further problem arise. This scenario seems very real and likely.”
More than half of respondents (55%) thought the total return on world equities would be 5-10% for 2013. Some 23% believed it would be 10-15% and 16% that it would be 0-5%. Of the remainder, 6% thought it would be less than 0%.
Some 44% of respondents thought the highest level reached by the 10-year German government bond yield in 2013 would be 2-2.25%, while 19% expect it to be 1.75-2%, and 14% believe it would be 2.25-2.5%.
Four respondents expected the German government bond yield to be 1.25-1.5%, three believed it would be less than 1.25%, two thought it would be more than 2.5% and one expected it to be 1.5-1.75%.
The majority of respondents felt government bonds had become over-valued, but others included real estate and corporate bonds.
A third of respondents said the restoration of confidence since late summer 2012 had led directly to changes in their portfolio positioning. “We have taken ‘risk on’ due to the signs of recovery, but we’ll be inclined to take profit due to concerns of set backs during the year.” A Spanish fund added: “We have invested more in peripheral markets in financial bonds and in equities.”
A Swiss fund that had not made changes to its portfolio positioning said: “We did restructure some mandates, but not as a direct consequence of the ‘restoration of confidence’. It has more to do with asset class proportions fixed before January for the coming year, and a new CIO who wanted to implement his ideas of investment strategies inside the asset classes.”