Investors sceptical on stock market rebound

Financial times – Peter Garnham in London – June 1 2009

The majority of the world’s leading investors do not believe the recent strong performance of stocks and other risky assets is sustainable, according to a report released on Monday. The FTSE All World equities index has surged more than 60 per cent since hitting a low for the year in March.

But Barclays Capital has revealed that just 17.5 per cent of the 605 investors interviewed for its quarterly FX investor sentiment survey – including central banks, asset managers, hedge funds and international corporate customers – think risky assets have further to rise. This is one aspect of a generally gloomy outlook for the global economy, which undermines optimism that “green shoots” of recovery are starting to emerge. Just 4.5 per cent of respondents believe the trajectory of the global economy over the next year will be “V-shaped” – indicating weakness followed by a sharp recovery.

The majority, 69 per cent, believe the path of the global economy will be either “U-shaped” or “W-shaped”, meaning that growth will remain weak for some time before a gradual recovery begins, or that a recovery will prove temporary and renewed weakness will set in. David Woo, head of global FX strategy at BarCap, said the results showed that most investors did not expect to see the sustainable rise in consumption, particularly in the US, that was necessary to deliver prolonged economic growth.

Six out of every 10 respondents believed that the recent rise in equities is a “bear market rally”, indicating that global investors still have a large share of their funds parked on the sidelines in cash. The survey revealed that 91 per cent of investors were running positions that were “light” or “average” in terms of their risk limit or capacity. This leaves just 9 per cent whose positions are “large” or “at limit”. “This is consistent with a widely shared view that many investors have missed the rally,” said Mr Woo. “It is conceivable that some of these investors may be pressured to jump on the bandwagon if equities extend their gains.”

Investors are most optimistic on Asia’s prospects, with 57.5 per cent believing emerging market currencies in the region will outperform those in Latin America and eastern Europe in the next three months. “There is a very strong consensus that Asia will be the beneficiary of the ‘China effect’,” said Mr Woo. “There is strong faith that China’s massive stimulus programme will boost the economy and the region.”

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