Europe Gaining Confidence Among Investors in Global PollSimon Kennedy
International investors are expressing renewed faith in the European economy, underpinning a mounting sense of confidence in the outlook for industrial nations, according to the latest Bloomberg Global Poll.
Forty percent of the responding investors, analysts and traders who are Bloomberg subscribers said the euro-area economy is improving, more than four times the number in May and a signal the region’s 3 ½-year debt crisis is ending. With sentiment also rising in the U.S. and Japan, 40 percent said the world economy is strengthening, the most since January 2011.
The bullishness five years since the collapse of Lehman Brothers Holdings Inc. is supporting a taste for risk as 52 percent anticipate stocks will offer the best return over the next year. Reflecting a shift in mood, the prospects of a Chinese slowdown and U.S. fiscal fight displaced Europe’s woes as the biggest global economic threats.
“A period of a surprising broad recovery seems to be under way,” Andreas Domke, a poll participant and portfolio manager at Allianz Global Investors Europe GmbH in Frankfurt, said in an e-mail.
The euroarea’s resurgence appears under way just weeks since it emerged from its deepest-ever recession and after the single currency’s very existence was thrown into doubt as cash-strapped governments from Greece to Spain tapped bailouts.
The larger European Union now offers one of the best investment opportunities for 34 percent of those polled, up from 18 percent in May and the most since that question was first asked in October 2009. Only 18 percent said the EU offers the worst prospects, an improvement from 45 percent in May.
The Euro Stoxx 50 Index will be higher six months from now in the view of 53 percent of poll participants, the first time a majority favored the market since the start of the poll in July 2009. Just 17 percent said Europe’s troubles pose the greatest risk to the global economy, compared to a third four months ago.
The risk of default is on the slide with about three-quarters saying Spain and Italy will avoid bankruptcy. Almost a third said Greece will dodge that fate too, the most optimistic since the question was first asked in June 2010. Still, 54 percent said Greece’s position in the euro area will be weaker once Germany’s elections pass this month.
“Structurally the issues that faced the euro and the design of monetary union are being addressed,” said Peter Kinsella, senior foreign exchange strategist at Commerzbank AG in London and a survey respondent. “The acid test is whether all of these changes will lead to job growth, which is what really matters.”
The euro has become a haven for investors, advancing almost 5 percent this year against nine developed nations’ currencies to be the best performer on the Bloomberg Correlation-Weighted Index. In a sign that confidence has still to fully return in Europe, just 12 percent of poll respondents plan to buy euros and only 9 percent said they intend to purchase more of the region’s government debt.
The U.S. maintained its lead as the healthiest developed nation at a time when the Federal Reserve is considering a pullback in stimulus. Sixty-four percent said the world’s largest economy is improving, almost twice the number of a year ago.
Just over half said its markets are a best bet for the coming year and 58 percent predict the Standard & Poor’s 500 Index will extend its 18 percent gain so far in 2013 into the early months of 2014. In a warning against complacency, 26 percent cite political gridlock over fiscal policy as an obstacle for the world, second only to a weakening Chinese economy.
Investors also expressed confidence in Japan as Prime Minister Shinzo Abe seeks to end 15 years of deflation, although the percentage of those saying it offered one of the best returns fell to 26 percent from 33 percent. Fifty-nine percent said its economy is on the upswing, compared with 48 percent in May. Fifty-eight percent of investors tip the Nikkei 225 Stock Average to sustain its 39 percent rise of this year and a little more than a quarter name the country a top investment opportunity in the next 12 months.
As investors bank on a global recovery, stocks remain the most favored asset by some distance, with real estate the second most popular as 16 percent forecast it to offer the highest return over the next year. Just 4 percent select bonds to beat other assets and 48 percent back them to perform the worst. Nineteen percent are bearish on gold and 44 percent see it cheaper in six months.
“We measure global risk at the lowest levels seen in the post-crisis period,” said Marie Owens Thomsen, chief economist at Credit Agricole Private Banking in Geneva. “Investors see little risk of a systemic threat to the world. As long as that is the case, there ought to be ample scope for risky assets to climb.”
Fifty-two percent of respondents said they plan to increase their exposure to equities over the next six months, maintaining this year’s majority support albeit down from 63 percent in January. While the appeal of both fell from May, a third are looking to real estate and 37 percent like the U.S. dollar.
More than half are reducing their investments in U.S. Treasury bonds and 38 percent are fleeing corporate bonds. Those increasing their gold reserves halved from a year ago to 15 percent. A quarter are reducing their exposure to commodities.
Investors seem divided over emerging-market equities with 27 percent saying they are buying them and the same amount selling them. Six percent are looking to increase their exposure to the yen and 3 percent fancy Japanese government bonds.
The better economic outlook isn’t enough to buoy President Barack Obama’s standing among investors. Forty-one percent said they are optimistic in his policies toward the investment climate and half said they regard him favorably, both the softest in a year.
There is nevertheless a political dividend for a strengthening economy elsewhere. As she prepares for a Sept. 22 election, Angela Merkel’s policies won the endorsement of 65 percent of investors, the best since the survey began asking this question in September 2010.
Fifty percent said they are upbeat about the work of U.K. Prime Minister David Cameron, his best showing since May 2011. Abe was backed by 70 percent of respondents, up from 54 percent of the start of the year.
Less popular, Chinese President Xi Jinping’s policies are viewed optimistically by 47 percent and just 13 percent said the same of French President Francois Hollande’s.
The poll of 900 Bloomberg subscribers was conducted Sept. 10 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.3 percentage points.