U.S. Loses No. 1 to Brazil-China-India Market in Investor Poll

The U.S. has fallen behind emerging markets in Brazil, China and India as the preferred place to invest, a Bloomberg survey shows, though the world’s largest economy still ranks highest of all major developed countries.

The U.S. ranked first three months ago in the last quarterly Bloomberg Global Poll. Along with the slipping perceptions of the U.S. markets in the most recent survey, conducted Sept. 16-17, poll respondents say the Federal Reserve is likely to take further steps to try to bolster the economy.

In the September poll of 1,408 investors, analysts and traders who are Bloomberg subscribers, respondents rate the U.S. fourth for potential returns over the next year, behind Brazil and China, tied for first, and India, in third place.

The U.S. economic situation “is obviously unsustainable, and the concerted attempt to suspend disbelief is playing increasingly poorly abroad,” says poll respondent Eric Kraus, chief strategist for Otkritie Brokerage House in Moscow. “One can delay, but no one can forestall the unwind of a multidecade credit bubble.”

Economic reports released since the June poll show U.S. GDP growth slowed to 1.6 percent in the second quarter from 3.7 percent in the first quarter. In the final quarter of last year, GDP grew at a 5.0 percent annual rate.

Expectations for U.S. GDP growth next year have dropped to a median forecast of 2.5 percent in September from 2.9 percent in June, according to Bloomberg’s monthly survey of economists.

S&P Rise

Since the June survey, U.S. stock markets have been on the rise. The Standard & Poor’s 500 Index has risen 3.62 percent since the last investor poll was completed June 3. That’s not as much as Brazil’s Bovespa Index, which is up 10.56 percent and India’s Bombay Stock Exchange Sensitive Index, which is up 10.44 percent. The U.S. stocks still did better than China’s Shanghai Stock Exchange Composite Index, which has risen 1.41 percent since June 3.

“I think the U.S. will get back on track, but not in the next 6-12 months,” says poll respondent Thomas Knudsen, a senior trader with OW Supply & Trading in Copenhagen.

Two-thirds of investors say they believe Federal Reserve policy makers, who meet today, will ease monetary policy through bond purchases by the end of the year. A similar 65 percent majority say the Fed bond purchases won’t boost U.S. economic growth.

Overall, investors give the central bank favorable marks, with a 57 percent majority believing its monetary policy is “about right.” More say it has been too aggressive, the view of 26 percent, than say it has been too timid, a view held by 14 percent.

Popular Bernanke

Fed Chairman Ben S. Bernanke is viewed favorably by 71 percent of respondents, up from 67 percent in June. He ranks highest in a list of eight global leaders and policy makers that includes President Barack Obama, Chancellor Angela Merkel of Germany and European Central Bank President Jean-Claude Trichet.

Only 1 out of 6 investors believes the U.S. economy is currently improving, though a 45 percent plurality considers the U.S. “stable.” Another 37 percent believe the U.S. is deteriorating.

The poll also shows that confidence in the dollar has slipped since June, when 63 percent of investors believed the U.S. currency would rise against the euro during the following three months. Forecasts are now evenly divided: 34 percent now expect a stronger dollar in three months; 32 percent expect little change; and 30 percent a weaker dollar.

The Bloomberg Global Poll was conducted by Selzer & Co., of Des Moines, Iowa, and has a margin of error of plus or minus 2.6 percentage points.

No ‘Lost Decade’

Investors are confident the U.S. will avoid some of the worst outcomes. Seven out of 10 investors say they believe there is little or no risk of a U.S. double-dip recession. Six out of 10 investors see little or no risk the U.S. will endure a Japan- like “Lost Decade” of minimal or no growth.

“There is a black cloud overhead, but the worst is not yet to come,” says J. Ann Selzer, president of Selzer & Co.

Still, investors are wary of the record U.S. budget deficits. A 53 percent majority sees a big or moderate risk the budget deficit will provoke a crisis of confidence within two years that will spur “a dramatic rise” in long-term interest rates.

Poll respondent Dieter Buchholz, head of equities at Falcon Private Bank in Zurich, said market sentiment could turn against U.S. debt if the bipartisan debt commission appointed by Obama fails to spur a credible reduction in long-term deficits or Congress bucks the White House to expand the deficit by extending Bush-era tax cuts for the wealthy.

‘Confidence Crisis’

“When the non-Americans see that efforts by the administration to balance the budget are fruitless, then I think you will get a confidence crisis,” Buchholz said.

In July, the White House budget office forecast the federal deficit would be a record $1.47 trillion for 2010 and $1.42 trillion for the 2011 fiscal year, which begins Oct. 1.

Poll respondents were evenly split on whether the current U.S. Treasury bond market is a bubble. In six months, 49 percent expect yields on the 10-year Treasury note to be higher versus 26 percent who expect yields to be lower.

Their view of the U.S. stock market is bullish: 49 percent expect the S&P 500 to be higher in six months, while 28 percent say it will be lower.

Poll respondents in the U.S. are more optimistic about their nation as a place for investment; 35 percent of U.S. investors name it as a top market, just behind Brazil. Outside the U.S., that number drops to 17 percent.

To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net.

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net.

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